Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-30T15:25:38.990Z Has data issue: false hasContentIssue false
  • English
  • Français

How Does Past Experience Impact Hedge Fund Activism?

Published online by Cambridge University Press:  28 June 2021

Nicole M. Boyson ,
Linlin Ma  and
Robert M. Mooradian
Nicole M. Boyson
Affiliation:
Northeastern University D’Amore-McKim School of [email protected]
Linlin Ma*
Affiliation:
Peking University HSBC Business School
Robert M. Mooradian
Affiliation:
Northeastern University D’Amore-McKim School of [email protected]
*
[email protected] (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

Hedge fund activists transfer relevant prior work experience to their activism campaigns. Categorizing activists based on past employment at investment banks (generalists), private equity or special situations partnerships (specialists), or other firms (nonfinancial experts), we relate activists’ prior work experience to their choices and outcomes. Both generalists with codifiable skills and specialists with tacit skills contribute to successful outcomes, but differences in these skills lead to differences in activism processes. Activist choices, market responses, target firm responses, and procedural aspects of activism vary with activist identity. Our analysis examines activists’ heterogeneous skills and highlights their importance in shaping activist interventions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1279 - 1312
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank an anonymous referee, Tobias Carlisle, Jarrad Harford (the editor), and seminar participants at Northeastern University and the University of Connecticut.

References

Agrawal, A., and Chadha, S.. “Corporate Governance and Accounting Scandals.” Journal of Law and Economics, 48 (2005), 371–406.CrossRefGoogle Scholar
Amihud, Y. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Bao, J., and Edmans, A.. “Do Investment Banks Matter for M&A Returns?” Review of Financial Studies, 24 (2011), 2286–2315.CrossRefGoogle Scholar
Bebchuk, L.; Cohen, A.; and Ferrell, A.. “What Matters in Corporate Governance?” Review of Financial Studies, 22 (2006), 783–827.CrossRefGoogle Scholar
Bebchuk, L. A.; Brav, A.; and Jiang, W.. “The Long-Term Effects of Hedge Fund Activism.” Columbia Law Review, 115 (2015), 1085–1156.Google Scholar
Bebchuk, L. A.; Brav, A., Jiang, W.; and Keusch, T.. “Dancing with Activists.” Journal of Financial Economics, 137 (2020), 1–41.CrossRefGoogle Scholar
Becht, M.; Franks, J., Mayer, C.; and Rossi, S.. “Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund.” Review of Financial Studies, 22 (2009), 3093–3129.CrossRefGoogle Scholar
Bottazzi, L.; Da Rin, M.; and Hellman, T.. “Who are the Active Investors? Evidence from Venture Capital.” Journal of Financial Economics, 89 (2008), 488–512.CrossRefGoogle Scholar
Boyson, N. M., and Mooradian, R. M.. “Corporate Governance and Hedge Fund Activism.” Review of Derivatives Research, 14 (2011), 169–204.CrossRefGoogle Scholar
Boyson, N. M.; Gantchev, N.; and Shivdasani, A.. “Activism Mergers.” Journal of Financial Economics, 126 (2017), 54–73.CrossRefGoogle Scholar
Boyson, N. M., and Pichler, P.. “Hostile Resistance to Hedge Fund Activism.” Review of Financial Studies, 32 (2019), 771–817.CrossRefGoogle Scholar
Brav, A.; Jiang, W.; Partnoy, F.; and Thomas, R.. “Hedge Fund Activism, Corporate Governance, and Firm Performance.” Journal of Finance, 63 (2008), 1729–1775.CrossRefGoogle Scholar
Chen, Z.; Morrison, A. D.; and Wilhelm, W. J. Jr. “Traders vs. Relationship Managers: Reputational Conflicts in Full-Service Investment Banks.” Review of Financial Studies, 28 (2015), 1153–1198.CrossRefGoogle Scholar
Chevalier, J., and Ellison, G.. “Are Some Mutual Fund Managers Better than Others?” Journal of Finance, 54 (1999), 875–899.CrossRefGoogle Scholar
Cici, G.; Gehde-Trapp, M.; Goericke, M.; and Kempf, A.. “The Investment Value of fund Managers’ Experience Outside the Financial Sector.” Review of Financial Studies, 31 (2018), 3821–3853.CrossRefGoogle Scholar
Clifford, C. “Value Creation or Destruction? Hedge Funds as Shareholder Activists.” Journal of Corporate Finance, 14 (2008), 323–336.CrossRefGoogle Scholar
Cohn, J., and Rajan, U.. “Optimal Corporate Governance in the Presence of an Activist Investor.” Review of Financial Studies, 26 (2013), 985–1020.CrossRefGoogle Scholar
Collin-Dufresne, P.; Fos, V.; and Muravyav, D.. “Informed Trading in the Stock Market and Option Price Discovery.” Journal of Financial and Quantitative Analysis, 55(2020), 1945–1984.Google Scholar
Corum, A. A., and Levit, D.. “Corporate Control Activism.” Journal of Financial Economics, 113 (2019), 1–17.CrossRefGoogle Scholar
Dai, N. “Does Investor Identity Matter? An Empirical Examination on Investments by Venture Capital Funds and Hedge Funds in PIPEs.” Journal of Corporate Finance, 13 (2007), 538–563.CrossRefGoogle Scholar
Defond, M. L.; Hann, R. N.; and Hu, X.. “Does the Market Value Financial Expertise on Audit Committees of Boards of Directors?” Journal of Accounting Research, 43 (2005), 153–93.CrossRefGoogle Scholar
Dittmar, A., and Duchin, R.. “Looking in the Rearview Mirror: The Effect of Managers’ Professional Experience on Corporate Financial Policy.” Review of Financial Studies, 29 (2016), 565–602.Google Scholar
Fos, V. “The Disciplinary Effects of Proxy Contests.” Management Science, 63 (2017), 655–671.CrossRefGoogle Scholar
Gantchev, N. “The Costs of Shareholder Activism: Evidence from a Sequential Decision Model.” Journal of Financial Economics, 107 (2013), 610–631.CrossRefGoogle Scholar
Gantchev, N.; Sevilir, M.; and Shivdasani, A.. “Activism and Empire Building.” Journal of Financial Economics, 138 (2020), 526–548.CrossRefGoogle Scholar
Glode, V.; Green, R. C.; and Lowery, R.. “Financial Expertise as an Arms Race.” Journal of Finance, 67 (2012), 1723–1759.CrossRefGoogle Scholar
Gompers, P.; Kovner, A., Lerner, J.; and Scharfstein, D.. “Performance Persistence in Entrepreneurship and Venture Capital.” Journal of Financial Economics, 96 (2010), 18–32.CrossRefGoogle Scholar
Gompers, P. A.; Ishii, J. L.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–155.CrossRefGoogle Scholar
Greenwood, R., and Schor, M.. “Investor Activism and Takeovers.” Journal of Financial Economics, 92 (2009), 362–375.CrossRefGoogle Scholar
Güner, A. B.; Malmendier, U.; and Tate, G.. “Financial Expertise of Directors.” Journal of Financial Economics, 88 (2008), 323–354.CrossRefGoogle Scholar
Harris, M., and Raviv, A.. “A Theory of Board Control and Size.” Review of Financial Studies, 21 (2008), 1797–1832.CrossRefGoogle Scholar
Hellmann, T., and Puri, M.. “Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence.” Journal of Finance, 57 (2002), 169–197.CrossRefGoogle Scholar
Hertzel, M.; Lemmon, M.; Linck, J. S.; and Rees, L.. “Long-Run Performance Following Private Placements.” Journal of Finance, 57 (2002), 2595–2617.CrossRefGoogle Scholar
Huang, Q.; Jiang, F.; Lie, E.; and Yang, K.. “The Role of Investment Banker Directors in M&A.” Journal of Financial Economics, 112 (2014), 269–286.CrossRefGoogle Scholar
Johnson, T. L., and Swem, N.. “Reputation and Investor Activism: A Structural Approach.” Journal of Financial Economics, (2021), 29–56.CrossRefGoogle Scholar
Jiang, W.; Li, T.; and Mei, D.. “Influencing Control: Jawboning in Risk Arbitrage.” Journal of Finance, 73 (2018), 2635–2675.CrossRefGoogle Scholar
Kaplan, S. N., and Stromberg, P.. “Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts.” Review of Economic Studies, 70 (2003), 281–315.CrossRefGoogle Scholar
Kaplan, S. N. and Stromberg, P.. “Venture Capitalists as Principals: Contracting, Screening, and Monitoring.” American Economic Review, 91 (2004), 426–430.CrossRefGoogle Scholar
Keusch, T. “Activists’ CEOs.” Working Paper, INSEAD (2019).Google Scholar
Klein, A., and Zur, E.. “Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors.” Journal of Finance, 64 (2009), 187–229.CrossRefGoogle Scholar
Krishnan, C. N. V.; Ivanov, V.; Masulis, R.; and Singh, A.. “Venture Capital Reputation, Post-IPO Performance, and Corporate Governance.” Journal of Financial and Quantitative Analysis, 46 (2011), 1295–1333.CrossRefGoogle Scholar
Krishnan, C. N. V.; Partnoy, F.; and Thomas, R.. “The Second Wave of Hedge Fund Activism: The Importance of Reputation, Clout, and Expertise.” Journal of Corporate Finance, 40 (2016), 296–314.CrossRefGoogle Scholar
Malmandier, U.; Opp, M. M.; and Saidi, F.. “Target Revaluation After Failed Takeover Attempts: Cash Versus Stock.” Journal of Financial Economics, 119 (2016), 92–106.CrossRefGoogle Scholar
Minton, B. A.; Taillard, J. P.; and Williamson, R.. “Financial Expertise of the Board, Risk Taking, and Performance: Evidence from Bank Holding Companies.” Journal of Financial and Quantitative Analysis, 49 (2014), 351–380.CrossRefGoogle Scholar
Morrison, A. D., and Wilhelm, W. J. Jr. “Partnership Firms, Reputation, and Human Capital.” American Economic Review, 94 (2004), 1682–1692.CrossRefGoogle Scholar
Morrison, A. D. and Wilhelm, W. J. Jr. “Investment of Banking: Past, Present, and Future.” Journal of Applied Corporate Finance, 19 (2007), 42–54.CrossRefGoogle Scholar
Morrison, A. D. and Wilhelm, W. J. Jr. “The Demise of Investment Banking Partnerships: Theory and Evidence.” Journal of Finance, 63 (2008), 311–350.CrossRefGoogle Scholar
Morrison, A. D., and Wilhelm, W. J. Jr. “Trust, Reputation, and Law: The Evolution of Commitment in Investment Banking.” Journal of Legal Analysis, 7 (2015), 363–420.CrossRefGoogle Scholar
Morrison, A. D.; Schenone, C.; Thegeya, A.; and Wilhelm, W. J. Jr. “Investment Banking Relationships: 1933–2007.” Review of Corporate Finance Studies, 7 (2018), 194–234.CrossRefGoogle Scholar
Wruck, K. “Equity Ownership Concentration and Firm Value: Evidence from Private Equity Financings.” Journal of Financial Economics, 23 (1989), 3–28.CrossRefGoogle Scholar
Wu, S. Y., and Chung, K. H.. “Hedge Fund Activism and Corporate M&A Decisions.” Working Paper, Wheaton College (2020).Google Scholar
Xie, B.; Davidson, W. N. III; and DaDalt, P. J. “Earnings Management and Corporate Governance: The Role of the Board and the Audit Committee.” Journal of Corporate Finance, 9 (2003), 295–316.CrossRefGoogle Scholar