Hedge Fund Activism and Debt Maturity Structure

We provide evidence that activist hedge funds significantly influence target firms’ debt choices. After hedge fund activism (HFA), the proportion of long-term debt significantly increases in US firms. Target firms’ debt maturity increases with post-HFA governance reforms; moreover, activists’ potential rent-seeking behaviour does not significantly affect targets’ debt maturity. Post HFA, target firms issue more bonds than loans; such preference for bonds explains the increase in targets’ debt maturity. However, we do not find that supply-side constraints influence this choice. Our findings indicate that target firms substitute their creditor-driven governance with a governance mechanism influenced by activist hedge funds.

Keywords: Debt maturity structure, Hedge fund activism, 13D filings

JEL Classification: G30, G32

Suggested Citation: Suggested Citation

Singh, Amanjot and Deb, Saikat Sovan and Singh, Harminder, Hedge Fund Activism and Debt Maturity Structure (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=3430923 or http://dx.doi.org/10.2139/ssrn.3430923