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The Returns to Hedge Fund Activism in Germany

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  • Wolfgang Bessler
  • Wolfgang Drobetz
  • Julian Holler

Abstract

Recent regulatory changes in the German financial system shifted corporate control activities from universal banks to other capital market participants. Particularly hedge funds took advantage of the resulting control vacuum by acquiring stakes in weakly governed and less profitable firms. We document that, on average, hedge funds increased shareholder value in the short†and long†run. However, more aggressive hedge funds generated only initially higher returns and their outperformance quickly reversed, whereas non†aggressive hedge funds ultimately outperformed their aggressive peers. These findings suggest that aggressive hedge funds attempt to expropriate the target firm's shareholders by exiting at temporarily increased share prices.

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  • Wolfgang Bessler & Wolfgang Drobetz & Julian Holler, 2015. "The Returns to Hedge Fund Activism in Germany," European Financial Management, European Financial Management Association, vol. 21(1), pages 106-147, January.
    • Handle: RePEc:bla:eufman:v:21:y:2015:i:1:p:106-147
    DOI: 10.1111/eufm.12004
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    Cited by:

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    4. Jörn Obermann, 2020. "Let’s talk about money! Assessing the link between firm performance and voluntary Say-on-Pay votes," Journal of Business Economics, Springer, vol. 90(1), pages 109-135, February.
    5. Robert M. Hull & Sungkyu Kwak & Rosemary Walker, 2018. "Hedge fund attributes, insider behavior, and IPO volatility," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(2), pages 268-292, April.
    6. Drobetz, W. & Momtaz, Paul P., 2020. "Antitakeover Provisions and Firm Value: New Evidence from the M&A Market," Journal of Corporate Finance, Elsevier, vol. 62(C).
    7. Bajzík, Josef & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2023. "Does Shareholder Activism Create Value? A Meta-Analysis," CEPR Discussion Papers 18233, C.E.P.R. Discussion Papers.
    8. Simon Rafaqat & Sana Rafaqat & Sahil Rafaqat & Saoul Rafaqat & Dawood Rafaqat, 2023. "Shareholder Activism and Firm Performance: A Review," Journal of Economics and Behavioral Studies, AMH International, vol. 14(4), pages 31-41.
    9. Bessler, Wolfgang & Vendrasco, Marco, 2022. "Why do companies become hedge fund targets? Evidence from shareholder activism in Germany," Finance Research Letters, Elsevier, vol. 47(PB).
    10. Hiroaki Miyachi & Fumiko Takeda, 2021. "Hedge Fund Activism in Japan under the Stewardship and Corporate Governance Codes," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(2), pages 119-130, May.
    11. Ann-Kristin Achleitner & Dmitry Bazhutov & André Betzer & Joern Block & Florian Hosseini, 2020. "Foundation ownership and shareholder value: an event study," Review of Managerial Science, Springer, vol. 14(3), pages 459-484, June.
    12. Bessler, Wolfgang & Vendrasco, Marco, 2022. "Corporate control and shareholder activism in Germany: An empirical analysis of hedge fund strategies," International Review of Financial Analysis, Elsevier, vol. 83(C).
    13. Block, Jörn & Jarchow, Svenja & Kammerlander, Nadine & Hosseini, Florian & Achleitner, Ann-Kristin, 2020. "Performance of foundation-owned firms in Germany: The role of foundation purpose, stock market listing, and family involvement," Journal of Family Business Strategy, Elsevier, vol. 11(4).
    14. Bessler, Wolfgang & Beyenbach, Johannes & Rapp, Marc Steffen & Vendrasco, Marco, 2021. "The global financial crisis and stock market migrations: An analysis of family and non-family firms in Germany," International Review of Financial Analysis, Elsevier, vol. 74(C).
    15. Jochen Hartmann & Matthias Pelster & Soenke Sievers, 2022. "Shareholder activism around the globe: Hedge funds vs. other professional investors," Working Papers Dissertations 98, Paderborn University, Faculty of Business Administration and Economics.
    16. Bajzik, Josef, 2023. "Is the role of shareholder activism in corporate governance overestimated?," Finance Research Letters, Elsevier, vol. 58(PC).
    17. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2021. "Institutional investment horizons and firm valuation around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 212-244, March.

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