Essays on Hedge Fund Activism and Family Firm PDF Download

Author: Pil-Seng Lee
Publisher:
ISBN:
Category : Culture
Languages : en
Pages : 0

View

Book Description
This dissertation has two essays covering hedge fund activism and family firm. In the first essay of my dissertation, I investigate how hedge fund activism reengineer corporate culture of targeted firms. By using culture measures based on the Q&A section of earnings conference calls, I find that target firms emphasize building organizational culture with better quality, more innovation, higher integrity, and growing respect after activism. However, teamwork culture does not change. I also find that these positive effects of activism on corporate culture are mainly driven by CEO turnover, especially if incumbent CEOs are replaced by outsiders, not insiders. New outside CEOs are recruited from firms with better culture and higher asset sales. Activist-appointed directors also influence corporate culture by promoting outside CEO turnover. Target firms with positive cultural change improve their firm performance. Additionally, employees of target firms perceive their firms’ culture as improved after activism. Overall, this study provides evidence of the importance of corporate culture as a source of gains from hedge fund activism. The second essay examines the extent to which founder-CEOs pay attention to stock market signals in making their investment decisions. We find that founder-CEOs, on average, place significantly less weight on market signals than professional CEOs, without compromising investment efficiency and firm performance. We employ decimalization as an exogenous shock to show that the market premium due to enhanced liquidity is lower for founder-CEO firms, consistent with founder-CEOs underweighting the incremental information provided by a more liquid market. Further, we find that the weaker learning behavior is more prominent if founder-CEOs possess more specialized skills and operate firms with higher R&D intensity and greater operating cash flow volatility. We argue that founder-CEOs’ superior skills and longer-term investment horizons drive this result. Price informativeness, CEO power, external monitoring, financing constraints, and overconfidence do not seem to drive our findings.

Author: Xianjue Wang
Publisher:
ISBN:
Category : Hedge funds
Languages : en
Pages : 160

View

Book Description
The first essay focuses on detailed activities in hedge fund activism targets. We perform a textual analysis of 8-Ks filed by 693 firms targeted by hedge fund activists over the 2005 to 2012 period to document the comprehensive material changes that these firms undergo after being targeted. We benchmark the changes in the year after the 13D filing to those in the year prior to 13D filing, and then control for changes over the same period in propensity score matched firms. The difference-in-differences results suggest that targets of hedge fund activism that are not acquired experience significantly higher incidence of CEO appointments and director arrivals that are both associated with higher shareholder value. The evidence also suggests that some changes that activists request like repurchases, sale of assets and bylaw changes though more frequent are not associated with any value gains. The evidence complements prior work by showing that activists potentially create value through governance changes along with pressurizing the target to sell itself. The second essay investigates the role of institutional investors in hedge fund activism. Hedge funds activists do not usually hold a large stake in the target firm. Institutional owners by their support or lack thereof can have a significant impact on the success of the activist's campaign. We develop three measures of institutional ownership that is likely to be supportive of activism. Over the period 2004 to 2012 we find that high pre event activism friendly institutional ownership is associated with significantly higher short term and long term stock returns and operating performance of the target firm. Pre event ownership by activism friendly institutions also significantly increases the likelihood of being targeted by hedge fund activists. The paper is one of the first to document that composition of institutional ownership has a significant impact on the likelihood of and value created from hedge fund activism.

Author: Hongfeng Lou
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 0

View

Book Description
In the first essay, I study the relationship between a firm's employee satisfaction and the firm's stock return, using Glassdoor data. First, I find that human capital is a valuable firm asset. Stock portfolios of firms with high employee satisfaction earn positive risk-adjusted returns. Second, contrary to the finding of Green et al. 2019, I find that firms with declining employee satisfaction outperform firms with improving employee satisfaction. Third, I find that change of employee satisfaction is associated with future accounting profitability but not with stock idiosyncratic volatility after controlling firm characteristics. In the second essay, I study the hedge fund activism's impact on target firms and employees of target firms. Hedge fund activism has grown rapidly over the last thirty years. Prior literature shows that hedge fund activism improves target firms' value and operational performance. However, whether such improvement is beneficial to target firms in the long-term is under debate in academic circles. In this study, I study the impact of hedge fund activism through the eyes of the employees of target firms. I find that hedge fund activism has a negative impact on the business of target firms. I also find that hedge fund activism reduces employees' career opportunities within target firms. The reduction of career opportunities corroborates studies showing that target firms lose valuable human capital after hedge fund activism. Overall, my study is consistent with a strand of burgeoning literature showing that hedge fund activism delivers negative impact to target firms and their employees.

Author: Marco Elia
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 104

View

Book Description
In the first essay, I apply behavioral finance theories to hypothesize one reason why hedge funds choose to engage in activism. Specifically, I predict that if hedge funds see the purchase price of their passive positions as a reference point, then, when they are suffering absolute losses, they are more likely to switch and become activists. I find results consistent with my prediction, even after controlling for the underperformance of the target firms. This study presents new evidence about what causes hedge fund activism. The behavioral finance literature has documented that retail investors, professional traders, and mutual funds are reluctant to realize their losses. I contribute to this literature by showing that a further effect of the loss is to cause activism. The second essay (with Naveen D. Daniel) examines the short-term incentives that activists are facing. The average announcement return to hedge fund activism is around 5%. Thus, activists that want to inflate their reported returns have incentives to initiate activism in target firms before the end of the reporting period. Our contribution is to document that activists engage in such opportunistic activism. Consistent with this, we find that activists are more likely to start their campaigns just before the end of the quarter. This heightened activity cannot be explained by increased news flow at the end of the quarter. In contrast to the typical positive market reaction to activist initiation, reaction to opportunistic activism is virtually zero. This is suggestive of activists initiating campaigns without completing their research on firms, which were potentially targeted for activism in the following quarter. The final essay (with Naveen D. Daniel) investigates how activists are able to be successful despite typically owning a stake of 6-7% in the target firms. We hypothesize that activists have incentives to (implicitly) coordinate with other institutional shareholders and to use this collective firepower to force target firms to change. Our contribution is to document that such coordination is pervasive and is mutually beneficial. In nearly two-thirds of the campaigns, there is coordination between the activist and institutional investors. Coordination is more likely in large firms where the activists would not have sufficient capital to build a large stake. Activist hedge funds that coordinate with other institutional shareholders are more successful in their activism as reflected in higher abnormal returns over the duration of the campaign. We attribute causation by instrumenting for coordination with the geographic proximity between the activist and the institutional investors.

Author: Tanja Katharina Kirmse
Publisher:
ISBN:
Category : Corporate governance
Languages : en
Pages : 0

View

Book Description
Observing information acquisition by various market participants can yield valuable insights into the goals and strategies of investors, firms, and regulators. My dissertation uses a unique dataset, which captures 'clicks' on companies' SEC filings, to answer three questions related to hedge fund activism. First, I use activist hedge funds' views of SEC filings to proxy for negotiations between those activists and firms. I find that negotiations are common and associated with governance changes. The second essay examines the reactions of firms to elevated activist hedge fund interest. We find that firms use shareholder rights plans ('poison pills') in an effort to discourage activists' share accumulation, and that such plans are successful at decreasing the probability 13D and DEF14A filings. Finally, hedge fund activism does not occur in isolation. The third essay examines spillover effects of hedge fund activism on the emissions of the target's peer firms. We find that while hedge fund activism targets decrease their emissions, their peers increase emissions, effectively negating the direct effect. This finding is particularly strong when peers are less likely to be subject to enforcement, and face more competitive pressures. Essay 1: A portion of hedge funds' engagement can be observed through their votes and regulatory filings. However, much of their communication occurs through direct interaction with management, which is not formally recorded. I use SEC EDGAR log file data to proxy for such engagements. This proxy indeed captures hedge fund interest: one hedge fund click more than doubles the probability of an activism event. Moreover, consistent with hedge fund clicks proxying for behind-the-scenes engagement, these clicks predict corporate governance changes, for example CEO and director turnover, even in the absence of a formal activist filing. I estimate that private activism constitutes at least 31% of all hedge fund activism, and potentially as much as 89%. Private activism is particularly likely when boards have more bargaining power, as proxied by a classified board or dual class share structure, and when directors have higher reputational concerns, as proxied by these individuals having more outside board seats. Essay 2: We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists' interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt "anti-activist" pills, suggesting that pills are effective in deterring activists. The results are particularly strong for "NOL" pills that, due to tax laws, have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics. Essay 3: Existing research shows that hedge fund activism decreases target firms' emissions. However, we document a negative spillover effect from hedge fund activism: hedge fund activism leads to a 1.1 percent increase in emissions by industry rivals. Evidence suggests that the increase in emissions stems from a reduction in environmentally friendly practices rather than a drop in production. The increase is larger for rival firms closer to default, with low profitability, and those operating in a competitive environment. Collectively, these results are consistent with a product market channel, where industry rivals cut environmental expenditure to compete against a more efficient target firm. Accounting for this spillover effect, an additional activism campaign, on average, leads to an increase in emissions of 135 thousand pounds at the industry level, or 0.75 percent increased emissions. Overall, our findings highlight the importance of considering spillover effects when evaluating how shareholder activism affects other stakeholders.

Author: Alon Brav
Publisher: Now Publishers Inc
ISBN: 1601983387
Category : Business & Economics
Languages : en
Pages : 76

View

Book Description
Hedge Fund Activism begins with a brief outline of the research literature and describes datasets on hedge fund activism.

Author: John Buchanan
Publisher: Cambridge University Press
ISBN: 1107016835
Category : Business & Economics
Languages : en
Pages : 389

View

Book Description
Charts the rise and fall of confrontational hedge fund activism in Japan.

Author: Ning Pu
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description
Chapter 1 compares and contrasts the activism styles and outcomes of hedge-fund activists versus traditional institutional activists in an attempt to understand what drives the returns of institutional activism. Contrary to the popular belief that hedge-fund activism is designed to achieve a short-term payoff at the expense of long-term profitability, I find some evidence consistent with the hypothesis that hedge-fund activists can be effective monitors, especially when multiple hedge funds collaborate on the monitoring efforts. This result is supported by examining the relations between the holdings by different types of hedge-fund activists and the outcomes of proposed MandA deals, such as acquirer announcement-period CARs, buy-and-hold abnormal returns, acquirer long-run operating performance, means of financing, deal status, and deal attitude. On the other hand, hedge funds that carry out individualistic activism efforts don't appear to exert effective monitoring efforts in the context of MandAs. Concurring with the previous studies on pension-fund activism, this paper finds that traditional institutional activists, as represented by activist pension funds and several activist mutual funds, tend to be effective monitors of MandA acquirers. Additionally, cross-holding analysis of the two groups of institutional activists (hedge funds vs. non-hedge funds) provides further evidence corroborative of the hypothesis that cross-holding activists who realize gains in both acquirers and targets tend to be effective monitors at the first place. Chapter 2 examines an expanded version of acquisition probability hypothesis proposed by Song and Walkling (2000). In contrast to the previous papers that find positive rival announcement-period abnormal returns, I find only rivals associated with value-creating deals experience positive announcement-period abnormal returns. In addition to studying the announcement-period abnormal returns, I also analyze the extent of impact on rivals around deal terminations and deal completions. The results show that rivals that experience higher announcement-period abnormal returns also tend to experience higher termination-period and completion-period returns, consistent with the predictions of the acquisition probability hypothesis. More direct tests of the hypothesis confirm that the rival announcement-period CARs are positively and significantly associated with the predicted probability of rivals becoming subsequent targets, and thus providing direct evidence corroborative of the acquisition probability hypothesis. Chapter 3 studies the impact of CalPERS Focus List (CFL) program have on bondholders' wealth. In contrast to the extant research documenting positive abnormal returns to shareholders of the firms subject to pension fund activism, I find that CalPERS Focus List (CFL) program significantly reduces existing bondholders' wealth. In the year subsequent to the releases of CalPERS' Focus List, 57% of outstanding bonds of target firms underwent downgrade. Additionally, I find evidence of an expropriation of wealth from the bondholder to the shareholder based on long-horizon analysis. The source of wealth transfer from bondholders to stockholders appear to come from rapid asset sales of the CFL firms following the targeting.

Author: Abhishek Ganguly
Publisher:
ISBN:
Category : Chief executive officers
Languages : en
Pages : 183

View

Book Description
My dissertation comprises three essays that address several unanswered and unsettled questions on the role of institutional investors as external monitors. In the first chapter titled, "Media and Shareholder Activism," using more than twenty-five million firm-level media articles, I examine the role of media in shareholder activism events from 2002 to 2014. I find that conditioning on numerous observable firm-specific characteristics and unobservables, broader and negative ex-ante media coverage, is positively associated with the probability of a firm being a shareholder activist's target. I further document that media coverage also plays a crucial role in determining the outcomes of activism events. Target firms with ex-ante positive media coverage not only have significantly lower announcement returns but also have a higher likelihood of management winning. The second chapter titled, "CEO Overconfidence and Shareholder Activism," relies on extensive behavioral corporate finance theory and empirically explores whether managerial overconfidence is associated with hedge-fund activists' target selection and activism outcomes. Predictions from theoretical models point in different directions: activists mitigate overconfidence or activists avoid overconfident managers. We find evidence that hedge-fund activists are less likely to target firms with overconfident CEOs, after controlling for various firm and CEO characteristics and fixed effects. In the third chapter, "Hedge Fund Activism and Capital Structure," using a comprehensive sample of hedge-fund activism from 1994 to 2018 in the U.S., and closest propensity score-matched firms, we study whether hedge-fund activists influence the capital structures of targeted firms. We find that for over-levered firms, there is a significant positive association between firms' distance away from the target leverage and their likelihood of being targeted by an activist hedge-fund. However, rebalancing of leverage toward their target debt ratios post-hedge fund activist intervention is observed only among under-levered firms. Our findings are broadly consistent with the dynamic trade-off models of capital structure, where adjustment costs and agency benefits of leverage play a crucial role.

Author: William Bratton
Publisher: OUP Oxford
ISBN: 0191039799
Category : Law
Languages : en
Pages : 924

View

Book Description
The past two decades has witnessed unprecedented changes in the corporate governance landscape in Europe, the US and Asia. Across many countries, activist investors have pursued engagements with management of target companies. More recently, the role of the hostile activist shareholder has been taken up by a set of hedge funds. Hedge fund activism is characterized by mergers and corporate restructuring, replacement of management and board members, proxy voting, and lobbying of management. These investors target and research companies, take large positions in `their stock, criticize their business plans and governance practices, and confront their managers, demanding action enhancing shareholder value. This book analyses the impact of activists on the companies that they invest, the effects on shareholders and on activists funds themselves. Chapters examine such topic as investors' strategic approaches, the financial returns they produce, and the regulatory frameworks within which they operate. The chapters also provide historical context, both of activist investment and institutional shareholder passivity. The volume facilitates a comparison between the US and the EU, juxtaposing not only regulatory patterns but investment styles.