Empirical Analysis – The Impact of Hedge Funds on German Target Firms
The traditional German corporate governance system did not provide many opportunities for capital market investors to have any influence on important corporate decisions. Instead, the system used to be controlled by a governing coalition consisting of controlling inside shareholders such as founding families and other companies, banks as the major providers of capital (Dittmann, Maug, and Schneider, 2010) and the company’s workforce. More recently, the importance of capital markets in corporate financing has grown and many firms have experienced a significant restructuring in their ownership structure. In fact, old blockholders have taken advantage of changes in tax regulations to sell their stakes. As a result, there is evidence that hedge funds have begun to fill this “control vacuum” and started to play an influential role in the corporate governance of German firms. For instance, in January 2005 the Anglo-Saxon hedge funds TCI and Atticus confronted the management of the German security exchange operator Deutsche Börse and forced it to implement several far-reaching restructuring measures. These activities indicate that a shift has occured in the German corporate governance system such that capital market investors can now also play an important role in key corporate decisions. This raises the crucial research question of whether hedge funds help to improve the quality of corporate governance, thereby contributing to a more efficient allocation of capital in the German economy.
KeywordsAbnormal Return Hedge Fund Share Price Cash Holding Free Cash Flow
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