Determinants of Hedge Fund Investment in Corporate Endgames

55 Pages Posted: 18 Nov 2020 Last revised: 16 Dec 2020

See all articles by Ludwig Dobmeier

Ludwig Dobmeier

HHL Leipzig Graduate School of Management

Renata Lavrova

HHL Leipzig Graduate School of Management

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance

Date Written: December 13, 2020

Abstract

Under German law the corporate endgame process of obtaining full control over a company offers multiple investment opportunities for investors with high investment flexibility, and is therefore particularly attractive to hedge funds. This paper investigates the determinants of hedge fund investment in corporate endgame processes based on a sample of 76 endgame situations of publicly listed German companies and investment data of 326 hedge funds. Examining characteristics of investment targets, we find that hedge funds invest in companies with a non-dominant majority owner and a high stake of index funds as latter’s limited ability to react in change of control situations creates a supportive investment environment. Hedge funds are most likely to invest after takeover consummation and before announcement of a new endgame transaction. Investigating the determinants of ongoing engagement after initial investment, we find that the ownership of other institutional investors, especially hedge funds, positively affects engagement likelihood, serving as a validation of the own investment approach. Abnormal performance and trading liquidity of target stock also positively affect hedge funds’ engagement. The results indicate that the endgame process in Germany is an attractive investment opportunity for hedge funds, while their involvement also adds complexity to the corporate control process.

Keywords: Hedge Fund, Corporate Governance, Corporate Control, Investment Determinants, ETF

JEL Classification: G11, G14, G18, G23, G32, G34

Suggested Citation

Dobmeier, Ludwig and Lavrova, Renata and Schwetzler, Bernhard, Determinants of Hedge Fund Investment in Corporate Endgames (December 13, 2020). Available at SSRN: https://ssrn.com/abstract=3712037 or http://dx.doi.org/10.2139/ssrn.3712037

Ludwig Dobmeier

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Renata Lavrova

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Bernhard Schwetzler (Contact Author)

HHL Leipzig Graduate School of Management - Department of Finance ( email )

Jahnallee 59
D-04109 Leipzig
Germany
+49-341-9851-685 (Phone)
+49-341-9851-689 (Fax)

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