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Predisclosure Accumulations by Activist Investors and Price Impact of Trading

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  • Atanas Mihov

Abstract

This study presents novel, robust evidence on the effect of price impact of trading, or Kyle’s lambda, on activist hedge funds’ predisclosure ownership accumulations.1 We find that hedge fund investors are less likely to target illiquid firms; upon targeting an illiquid firm, activists choose private transactions to limit the price impact of their trades; upon doing open market transactions, the activist investors buy more shares of those firms with liquid stock. Our study suggests that market impact can be a factor with significant implications for shareholder activism, and more generally, corporate governance.

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  • Atanas Mihov, 2016. "Predisclosure Accumulations by Activist Investors and Price Impact of Trading," Review of Finance, European Finance Association, vol. 20(1), pages 231-263.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:1:p:231-263.
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    File URL: http://hdl.handle.net/10.1093/rof/rfv006
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    1. Marco Becht & Julian Franks & Jeremy Grant & Hannes F. Wagner, 2017. "Returns to Hedge Fund Activism: An International Study," The Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 2933-2971.
    2. Brav, Alon & Jiang, Wei & Kim, Hyunseob, 2010. "Hedge Fund Activism: A Review," Foundations and Trends(R) in Finance, now publishers, vol. 4(3), pages 185-246, March.
    3. Aslan, Hadiye & Kumar, Praveen, 2016. "The product market effects of hedge fund activism," Journal of Financial Economics, Elsevier, vol. 119(1), pages 226-248.
    4. Marco Becht & Julian Franks & Colin Mayer & Stefano Rossi, 2010. "Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    5. Øyvind Norli & Charlotte Ostergaard & Ibolya Schindele, 2015. "Liquidity and Shareholder Activism," The Review of Financial Studies, Society for Financial Studies, vol. 28(2), pages 486-520.
    6. Ellis, Katrina & Michaely, Roni & O'Hara, Maureen, 2000. "The Accuracy of Trade Classification Rules: Evidence from Nasdaq," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(4), pages 529-551, December.
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    Cited by:

    1. Oehler, Andreas & Schmitz, Jonas Tobias, 2021. "Does intensified communication of hedge funds with letters affect abnormal returns?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 127-142.

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