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Governance under the gun : spillover effects of hedge fund activism

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Gantchev, Nickolay, Gredil, Oleg R. and Jotikasthira, Chotibhak (2019) Governance under the gun : spillover effects of hedge fund activism. Review of Finance, 23 (6). pp. 1031-1068. doi:10.1093/rof/rfy035

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Official URL: http://dx.doi.org/10.1093/rof/rfy035

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Abstract

Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this article, we show that these positive effects of activism reach beyond the targets, as nontargeted peers make similar improvements under the threat of activism. Peers with higher threat perception, as measured by director connections to past targets, are more likely to increase leverage and payout, decrease capital expenditures and cash, and improve return on assets and asset turnover. As a result, their valuations improve, and their probability of being targeted declines. Our results are not explained by time-varying industry conditions or competition effects whereby improved targets force their product market rivals to become more competitive.

Item Type: Journal Article
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Hedge funds , Corporate governance, Stockholders , Stockholders' derivative actions
Journal or Publication Title: Review of Finance
Publisher: Oxford University Press
ISSN: 1572-3097
Official Date: October 2019
Dates:
DateEvent
October 2019Published
16 November 2018Available
29 October 2018Accepted
Volume: 23
Number: 6
Page Range: pp. 1031-1068
DOI: 10.1093/rof/rfy035
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Finance following peer review. The version of record Nickolay Gantchev, Oleg R Gredil, Chotibhak Jotikasthira, Governance under the Gun: Spillover Effects of Hedge Fund Activism, Review of Finance, Volume 23, Issue 6, October 2019, Pages 1031–1068, https://doi.org/10.1093/rof/rfy035 is available online at: https://doi.org/10.1093/rof/rfy035
Access rights to Published version: Restricted or Subscription Access
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