Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors

73 Pages Posted: 5 Jul 2006 Last revised: 24 Jun 2008

April Klein

New York University (NYU) - Department of Accounting

Emanuel Zur

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2006

Abstract

We examine recent confrontational shareholder activism campaigns by hedge funds and by other private investors. The three main parallels between the groups are a significantly positive market reaction for the target firm around the initial Schedule 13D filing date, a further significant increase in share price for the subsequent year, and the activist's high success rate in gaining its original objective. The two main differences are the types of companies each group targets and the activists' post-investment strategies. Hedge funds target more profitable and healthy firms than other activists. Afterwards, hedge funds reduce the target's cash holdings by increasing its leverage and dividends paid. In contrast, other activists lower the target's capital expenditures and research and development costs. In total, we conclude that the activism benefits existing shareholders of the targeted firms, but that hedge funds and other entrepreneurial activists achieve these benefits through different outlets.

Keywords: Hedge Fund, Activism, 13D

JEL Classification: G28, G34

Suggested Citation

Klein, April and Zur, Emanuel, Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors (September 2006). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper; ECGI - Finance Working Paper No. 140/2006; NYU Law and Economics Research Paper No. 06-41; 1st Annual Conference on Empirical Legal Studies. Available at SSRN: https://ssrn.com/abstract=913362 or http://dx.doi.org/10.2139/ssrn.913362

April Klein (Contact Author)

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Emanuel Zur

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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