Governance under the Gun: Spillover Effects of Hedge Fund Activism

Nickolay Gantchev, Oleg R Gredil and Chotibhak Jotikasthira

Review of Finance, 2019, vol. 23, issue 6, 1031-1068

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.

Keywords: Shareholder activism; Corporate governance; Hedge funds; Institutional investors (search for similar items in EconPapers)
JEL-codes: G12 G23 G32 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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