Blockholder Disclosure Thresholds and Hedge Fund Activism

Journal of Financial and Quantitative Analysis, Forthcoming

41 Pages Posted: 22 Mar 2021

See all articles by Guillem Ordonez-Calafi

Guillem Ordonez-Calafi

University of Bristol

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: March 2021

Abstract

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

Ordonez-Calafi, Guillem and Bernhardt, Dan, Blockholder Disclosure Thresholds and Hedge Fund Activism (March 2021). Journal of Financial and Quantitative Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3807293

Guillem Ordonez-Calafi (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

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