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Corporate Governance and Hedge Fund Activism

45 Pages Posted: 21 Mar 2008 Last revised: 4 Dec 2012

Nicole M. Boyson

Northeastern University - D’Amore-McKim School of Business

Robert M. Mooradian

Northeastern University, D’Amore-McKim School of Business, Finance Area

Date Written: June 1, 2010

Abstract

Recently, the mainstream media have paid considerable attention to hedge funds behaving as agents of corporate change. We study this phenomenon using a unique dataset of hedge fund activism for the period 1994-2005, and find evidence that hedge fund activists improve both short-term stock performance and long-term operating performance of their targets. The most dramatic changes in performance accrue to targets where activists seek corporate governance changes and reductions in excess cash. Additionally, hedge funds themselves benefit from activism: the risk-adjusted annual performance of hedge funds seeking changes in corporate governance is about 7-11% higher than for non-activist hedge funds and hedge funds pursuing less aggressive activism. These results imply that hedge funds can facilitate long-lasting changes in corporate governance, cash flows, and operating performance that benefit target firm shareholders and hedge fund investors alike.

Keywords: hedge funds, activism, shareholder, corporate governance

JEL Classification: G23, G32, G34

Suggested Citation

Boyson, Nicole M. and Mooradian, Robert M., Corporate Governance and Hedge Fund Activism (June 1, 2010). Review of Derivatives Research, Vol. 14, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=992739

Nicole M. Boyson (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
617-373-4775 (Phone)

Robert M. Mooradian

Northeastern University, D’Amore-McKim School of Business, Finance Area ( email )

Boston, MA 02115
United States
617-373-5955 (Phone)
617-373-8798 (Fax)

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