Blockholder Disclosure Thresholds and Hedge Fund Activism
Journal of Financial and Quantitative Analysis, Forthcoming
41 Pages Posted: 22 Mar 2021
Date Written: March 2021
Blockholder disclosure thresholds shape incentives for hedge fund activism, which are jointly determined with real investment and managerial behavior. Uninformed investors value lower thresholds (greater transparency) when the cost of trading against an informed activist outweighs the benefits of the activist's disciplining of management. Conversely, activists may desire disclosure thresholds if the threat of their participation discourages managerial malfeasance, which is their source of profits. Hedge fund activism can be excessive: if market opacity sufficiently harms uninformed investors, the costs of reduced real investment outweigh the social benefits from managerial disciplining, and society benefits from lower thresholds.
Keywords: Hedge fund activism, blockholder disclosure thresholds, informed trading, investor activism.
JEL Classification: G34, G14, G18, K22
Suggested Citation: Suggested Citation