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Hedge Fund Activism, Corporate Governance, and Firm Performance

56 Pages Posted: 5 Apr 2007  

Alon Brav

Duke University - Fuqua School of Business

Wei Jiang

Columbia Business School - Finance and Economics

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Frank Partnoy

University of San Diego School of Law

Date Written: May 2008

Abstract

Using a large hand-collected dataset from 2001 to 2006, we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.

Keywords: Hedge Fund, Activism, Governance

JEL Classification: G14, G23, G3

Suggested Citation

Brav, Alon and Jiang, Wei and Thomas, Randall S. and Partnoy, Frank, Hedge Fund Activism, Corporate Governance, and Firm Performance (May 2008). Journal of Finance, Vol. 63, p. 1729, 2008; ECGI - Finance Working Paper No. 139/2006; Vanderbilt Law and Economics Research Paper No. 07-28; FDIC Center for Financial Research Working Paper No. 2008-06. Available at SSRN: https://ssrn.com/abstract=948907

Alon Brav (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)

Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Frank Partnoy

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260-2352 (Phone)
619-260-4180 (Fax)

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