- 09 Jul 2014
- Working Paper
Hedge fund activism has become a significant phenomenon in recent years. Compared to traditional shareholder activists, for instance, hedge fund activists have been making a broader range of demands and adopting a wider range of tactics to have those demands met. Given the importance that the demand for board positions has in the activist game plan, the authors of this paper examine hedge fund activism through cases where candidates sponsored by the activists become directors of the target companies. Findings show that activist directors appear to be associated with significant strategic and operational changes in target firms. The study also shows evidence of increased divestiture, decreased acquisition activity, higher probability of being acquired, lower cash balances, higher payout, greater leverage, higher CEO turnover, lower CEO compensation, and reduced investment. The estimated effects are generally greater when activists obtain board representation, consistent with board representation being an important mechanism for bringing about the kinds of changes that activists often demand.
- 04 Mar 2014
- Working Paper
Activism by hedge fund and other investors to improve governance and performance of companies has become a significant phenomenon in recent years. In this paper the authors examine a number of career consequences for directors when firms are subject to activist shareholder interventions. Examining 1,868 activism events—all publicly disclosed shareholder activism from 2004 to 2012 conducted by hedge funds or other major shareholders—the authors find that directors exit the board at a higher rate when their firms are targeted by activists. Even directors not specifically targeted by dissident shareholders are also likely to leave the board, as are directors at firms targeted by activism with no board-related demands, let alone a formal proxy fight. Overall, whether departure is voluntary, optimal, or otherwise, the evidence suggests that activism is associated with career consequences for directors.