Influences of Hedge Fund Activism on the Medium Term Target Firm Value

2007 ◽  
Author(s):  
Nick W.A. Stokman
Keyword(s):  
Firm Value ◽  
Hedge Fund ◽  
Medium Term ◽  
Target Firm ◽  
Hedge Fund Activism

scholarly journals The impact of hedge fund activism on target firm performance, executive compensation and executive wealth

2017 ◽  
Vol 6 (3) ◽  
pp. 14-28 ◽  
Author(s):  
Andrew Carrothers
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Firm Value ◽  
Hedge Fund ◽  
Share Price ◽  
Target Firm ◽  
Increased Risk ◽  
Target Firms ◽  
Hedge Fund Activism ◽  
The Impact

This paper examines the relationship between hedge fund activism and target firm performance, executive compensation, and executive wealth. It introduces a theoretical framework that describes the activism process as a sequence of discrete decisions. The methodology uses regression analysis on a matched sample based on firm size, industry, and market-to-book ratio. All regressions control for industry and year fixed effects. Schedule 13D Securities and Exchange Commission (SEC) filings are the source for the statistical sample of hedge fund target firms. I supplement that data with target firm financial, operating, and share price information from the CRSP-COMPUSTAT merged database. Activist hedge funds target undervalued or underperforming firms with high profitability and cash flows. They do not avoid firms with powerful CEOs. Leverage, executive compensation, pay for performance and CEO turnover increase at target firms after the arrival of the activist hedge fund. Target firm executives’ wealth is more sensitive to changes in share price after hedge fund activism events suggesting that the executive team experiences changes to their compensation structure that provides incentive to take action to improve returns to shareholders. The top executives reap rewards for increasing firm value but not for increased risk taking.

Hedge Fund Activism and Long-Term Firm Value

2015 ◽  
Author(s):  
Martijn Cremers ◽  
Erasmo Giambona ◽  
Simone M. Sepe ◽  
Ye Wang
Keyword(s):  
Firm Value ◽  
Hedge Fund ◽  
Hedge Fund Activism

A Review of Hedge Fund Activism: Impact on Shareholders vs. Stakeholders

2021 ◽  
pp. 282-317
Author(s):  
Hadiye Aslan
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Spillover Effects ◽  
Empirical Literature ◽  
Target Firm ◽  
Market Strategy ◽  
Target Firms ◽  
Product Market Strategy ◽  
Hedge Fund Activism ◽  
Rival Firms

This chapter reviews the growing empirical literature on shareholder activism by hedge funds, summarizing the sources and nature of the activist data and examining the evidence on target firm outcomes. Target firms do not exist in a vacuum, however; they have industry competitors, suppliers, customers, debtholders, and employees. Hedge fund activists often demand a reformulation of the target firm’s product market strategy to enhance its ability to earn inframarginal profits. This positive strategic effect may be especially significant for target firms that are economically distressed and facing predatory moves from deep-pocketed rival firms to induce exit. The putative significant effects of hedge fund activism on targets should generate spillover effects on their stakeholders. The chapter considers these spillover effects in a number of well-defined categories: industry rivals, customers, suppliers, debtholders, and employees.

scholarly journals Wolves at the Door: A Closer Look at Hedge Fund Activism

2020 ◽  
Vol 66 (6) ◽  
pp. 2347-2371 ◽  
Author(s):  
Yu Ting Forester Wong
Keyword(s):  
Hedge Fund ◽  
Target Firm ◽  
Data Set ◽  
Spontaneous Formation ◽  
Bargaining Position ◽  
Potential Benefits ◽  
Hedge Fund Activism ◽  
Benefits And Costs ◽  
Rule Out ◽  
Effort Hypothesis

Most investor coordination remains undisclosed. I provide empirical evidence on the extent and consequences of investor coordination in the context of hedge fund activism, in which potential benefits and costs from coordination are especially pronounced. In particular, I examine whether hedge fund activists orchestrate “wolf packs”—that is, groups of investors willing to acquire shares in the target firm before the activist’s campaign is publicly disclosed via a 13D filing—as a way to support the campaign and strengthen the activist’s bargaining position. Using a novel hand-collected data set, I develop a method to identify the formation of wolf packs before the 13D filing. I investigate two competing hypotheses: the Coordinated Effort Hypothesis (wolf packs are orchestrated by lead activists to circumvent securities regulations about “groups” of investors) and the Spontaneous Formation Hypothesis (wolf packs spontaneously arise because investors independently monitor and target the same firms at about the same time). A number of tests rule out the Spontaneous Formation Hypothesis and provide support for the Coordinated Effort Hypothesis. Finally, the presence of a wolf pack is associated with various measures of the campaign’s success. This paper was accepted by Brian Bushee, accounting.

The Impact of Hedge Fund Activism on the Target Firm’s Existing Bondholders

CFA Digest ◽  
2011 ◽  
Vol 41 (3) ◽  
pp. 3-5
Author(s):  
Lee Kher Sheng
Keyword(s):  
Hedge Fund ◽  
Hedge Fund Activism ◽  
The Impact
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