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Corporate governance and hedge fund activism

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Abstract

Recently, the mainstream media have paid considerable attention to hedge funds behaving as agents of corporate change. We study this phenomenon using a unique dataset of hedge fund activism for the period 1994–2005, and find evidence that hedge fund activists improve both short-term stock performance and long-term operating performance of their targets. The most dramatic changes in performance accrue to targets where activists seek corporate governance changes and reductions in excess cash. Additionally, hedge funds themselves benefit from activism: the risk-adjusted annual performance of hedge funds seeking changes in corporate governance is about 7–11% higher than for non-activist hedge funds and hedge funds pursuing less aggressive activism. These results imply that hedge funds can facilitate long-lasting changes in corporate governance, cash flows, and operating performance that benefit target firm shareholders and hedge fund investors alike.

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Authors and Affiliations

  1. Northeastern University, Boston, MA, 02115, USA

    Nicole M. Boyson & Robert M. Mooradian

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  1. Nicole M. Boyson
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  2. Robert M. Mooradian
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Correspondence to Nicole M. Boyson.

Additional information

We wish to thank Bunmi Faleye and Joel Houston for valuable comments and participants at the 2007 FMA meeting, 2008 FMA European Meeting. The paper was awarded the best paper in corporate governance at the 2008 FMA European Meeting. and Matt Foster and Chris Hermmann for excellent research assistance.

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Boyson, N.M., Mooradian, R.M. Corporate governance and hedge fund activism. Rev Deriv Res 14, 169–204 (2011). https://doi.org/10.1007/s11147-011-9065-6

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