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Institutional Investors and Hedge Fund Activism

Author

Listed:
  • Simi Kedia
  • Laura T. Starks
  • Xianjue Wang

Abstract

Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes. (JEL: G13, G23, G34)Received March 12, 2020; editorial decision July 13, 2020 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Simi Kedia & Laura T. Starks & Xianjue Wang, 2021. "Institutional Investors and Hedge Fund Activism," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(1), pages 1-43.
    • Handle: RePEc:oup:rcorpf:v:10:y:2021:i:1:p:1-43.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfaa027
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    Citations

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    Cited by:

    1. Brav, Alon & Dasgupta, Amil & Mathews, Richmond D., 2022. "Wolf pack activism," LSE Research Online Documents on Economics 112118, London School of Economics and Political Science, LSE Library.
    2. Dasgupta, Amil & Fos, Vyacheslav & Sautner, Zacharias, 2021. "Institutional investors and corporate governance," LSE Research Online Documents on Economics 112114, London School of Economics and Political Science, LSE Library.
    3. Ringe Wolf-Georg, 2023. "Investor Empowerment for Sustainability," Review of Economics, De Gruyter, vol. 74(1), pages 21-52, April.
    4. Sudam Shingade & Shailesh Rastogi & Venkata Mrudula Bhimavarapu & Abhijit Chirputkar, 2022. "Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India," JRFM, MDPI, vol. 15(4), pages 1-20, March.
    5. 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).
    6. Alon Brav & Amil Dasgupta & Richmond Mathews, 2022. "Wolf Pack Activism," Management Science, INFORMS, vol. 68(8), pages 5557-5568, August.
    7. Loureiro, Gilberto & Mendonça, Cesar, 2024. "Do large registered investment funds undermine shareholder activism? Evidence from hedge fund proposals," Journal of Banking & Finance, Elsevier, vol. 162(C).
    8. Maas, Martina, 2021. "Die Bedeutung der Kapitalmarktkommunikation für börsennotierte Unternehmen," Working Papers 9, Helmut Schmidt University, Research Cluster OPAL.
    9. Cvijanović, Dragana & Dasgupta, Amil & Zachariadis, Konstantinos E., 2022. "The Wall Street stampede: Exit as governance with interacting blockholders," Journal of Financial Economics, Elsevier, vol. 144(2), pages 433-455.
    10. Wang, Xianjue, 2022. "Disloyal managers and proxy voting," Finance Research Letters, Elsevier, vol. 44(C).
    11. He, Yazhou Ellen, 2021. "Communications in proxy contests," Journal of Corporate Finance, Elsevier, vol. 69(C).
    12. 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).

    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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