Hedge Funds Activism, Corporate Governance, and Firm Performance

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Abstract
With over a trillion dollars of capital at the disposal of U.S.-based hedge funds, and a quarter trillion dollars in European funds, hedge fund managers have been aggressively looking for attractive investment opportunities and, in particular, have changed the role that they play in the corporate governance of publicly traded companies. Indeed, over the last few years we have witnessed a surge in hedge fund activism, ranging from proposals or proxy contests aimed at changing companies' payout policies, acquisition decisions, or executive compensation, to full-scale take-over bids. This new form of activism has led to a heated debate as to whether it helps or harms the economic and financial health of target companies. Some argue that activism results in higher firm productivity and growth and thus higher shareholder value. Others are concerned that hedge funds' actions generate short run profits at the expense of long-term shareholder value. To date, there has not been an empirical study with a focus on the determinants and consequences of hedge fund activism. With this project we intend to fill this gap. We plan to hand-collect a comprehensive event-based sample from various SEC and media sources, and perform an empirical study on the causes, nature and consequences of hedge fund activism. We believe that the evidence and conclusions from this project will provide a useful benchmark for law and policy makers, institutional investors, corporate boards and managers, as well as to researchers.

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