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Article
Publication date: 15 June 2022

Jason Cavich

Following the traditions of stakeholder salience theory, this paper aims to contend that some institutional investor activists and tactics have more power, legitimacy and…

Abstract

Purpose

Following the traditions of stakeholder salience theory, this paper aims to contend that some institutional investor activists and tactics have more power, legitimacy and urgency than others.

Design/methodology/approach

The author undertakes an empirical test of a saliency table looking at the effects of institutional investor heterogeneity on portfolio firm responses using ordinal logistic regression.

Findings

This study found heterogeneity for institutional investor type to drive firm responses but not tactic type raising the importance of the attributes of each type of investor activist. The author found a rank ordering of public pension plans, hedge funds and then private multiemployer funds in saliency to portfolio firms. In addition, the use of proxy-based tactics did not help or hurt each investor type. Both findings challenge prior empirical work.

Originality/value

The rank ordering based upon the heterogeneity of institutional investor activists and their tactical interactions are tested providing empirical evidence of the most influential activist investors and tactics in one study, which is rare in the literature.

Details

Society and Business Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5680

Keywords

Open Access
Article
Publication date: 4 October 2022

David Folsom, Iftekhar Hasan, Yinjie (Victor) Shen and Fuzhao Zhou

The aim of the paper is to investigate the associations between hedge fund activism and corporate internal control weaknesses.

Abstract

Purpose

The aim of the paper is to investigate the associations between hedge fund activism and corporate internal control weaknesses.

Design/methodology/approach

In this paper, the authors identify hedge fund activism events using 13D filings and news search. After matching with internal control related information from Audit Analytics, the authors utilize ordinary least square (OLS) and propensity score matching (PSM) to analyze the data.

Findings

The authors find that after hedge fund activism, target firms report additional internal control weaknesses, and these identified internal control weaknesses are remediated in subsequent years, leading to better financial-reporting quality.

Originality/value

The findings indicate that both managers and activists have incentives to develop a stronger internal control environment after targeting.

Details

China Accounting and Finance Review, vol. 24 no. 4
Type: Research Article
ISSN: 1029-807X

Keywords

Article
Publication date: 4 May 2012

Timothy A. Kruse and Kazunori Suzuki

This paper seeks to analyse Steel Partners' investments and activism targeting United Industrial, Ronson, and BKF Capital to provide context for the debate surrounding…

Abstract

Purpose

This paper seeks to analyse Steel Partners' investments and activism targeting United Industrial, Ronson, and BKF Capital to provide context for the debate surrounding shareholder activism by hedge funds and how incumbent management should cope with it. Steel Partners is one of the busiest and most controversial activist investors in both the USA and Japan.

Design/methodology/approach

An in‐depth clinical analysis of Steel Partners activism at three targets is performed. Context is then provided with a broader study of 63 companies targeted by Steel Partners.

Findings

The paper reveals that Steel achieved remarkably different degrees of success with each target. This analysis suggests the use of longer post‐activism windows to examine performance, more nuanced definitions of successful activism, and the inclusion of officer and director ownership as a predictor of activist success and target performance.

Practical implications

Managers wishing to maintain their independence face a difficult balancing act. One option is simply to refuse to negotiate, preferably while maintaining a substantial ownership stake. However, the activist might launch a proxy fight or hostile bid, file a lawsuit, or even encourage a wolf‐pack type campaign. For activists, target selection, especially managerial ownership, and patience are important. Steel quickly achieved its goals at BKF and failed at Ronson despite maintaining its stake for more than 13 years. It suffered large losses in both cases.

Originality/value

This paper provides researchers and practitioners with additional insights into the debate concerning the value of hedge fund activism. It also suggests several new questions to researchers examining corporate governance and activism.

Details

Managerial Finance, vol. 38 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 25 September 2020

Yeşim Şendur

Introduction:Shareholder activism comprises a range of activities by public companies’ shareholders who desire some change in the corporation and intervene in the…

Abstract

Introduction:Shareholder activism comprises a range of activities by public companies’ shareholders who desire some change in the corporation and intervene in the management’s decisions. The goals of activists are various. They may seek to change the company’s strategy, financial structure, management, or board in general. More specifically they may seek to change the capital allocation strategy (stock buybacks, dividends, or company’s acquisitions policies), the board composition, the company’s executive compensation plans, or the company’s certain functions (risk management, audit).

Purpose:The purpose of this literature review research study is to explore the concept of shareholder activism. According to a point of view, these activist actions stimulate better corporate governance practice in the companies and ultimately lead to an increase in the company’s stock price in the short term. The others claim that activism increases the company’s share price volatility in the long term. In the near future, the impact of shareholder activism will continue to rise and the ways how the companies respond to it is gaining importance. This study sheds light on the types of shareholder activism, when they are likely to approach a company and which tactics they most likely use.

Methodology:Considering the rapid expansion of shareholder activism concept in the world the author makes a review of literature on shareholder activism. The structure of this chapter is as follows. First, the characteristics of shareholder activism are introduced. Second, the theoretical background of this concept is given in detail. Third, the types of shareholder activism are discussed. Finally, the conclusion comprises a summary of shareholder activism.

Findings:The study finds out that shareholder activism has started to have a significant influence on corporate governance policy that a firm adopts in recent years. Shareholder activism increases levels of shareholder engagement in firm decisions and fosters a long-term corporate governance culture. As institutional investors get a higher portion from global equity investments, their role in shareholder activism will increase. There are opinions suggesting that investor activism will lead to better corporate governance practices in firms, leading to an increase in firm share prices in the short term. The shareholder activism phenomenon seems to be on the agenda of all companies in the near future.

Book part
Publication date: 21 October 2013

Nathalie Del Vecchio and Carine Girard

Purpose – This chapter presents the results of an exploratory study carried out on activist institutional investor strategies. It aims to identify the…

Abstract

Purpose – This chapter presents the results of an exploratory study carried out on activist institutional investor strategies. It aims to identify the way in which different types of institutional investors are reacting to new institutional pressures in the French context.

Design/methodology/approach – Our methodology is based on a series of semi-directive interviews, combined with additional relevant data.

Findings – The interpretation of results makes use of institutional theory, more specifically the work of Oliver (1991). Our study shows that active institutional investors may opt for different responses when confronted with new institutional pressures, and that these responses would seem to depend on antecedents underlined by Ryan and Schneider (2002), which in turn depend on the nature of their business relationships with the firm in which they invest. Whereas pressure-sensitive investors (such as banks and insurance companies) generally adopt acquiescence responses, pressure-resistant investors (such as pension funds and investment funds) pursue joint strategies of co-optation, influence or control with key actors such as local and international proxy advisors and French investor associations. Acting conjointly, certain pressure-resistant investors are often considered as institutional entrepreneurs in that they initiate changes and actively participate in the implementation of new norms in the field of shareholder activism in the French context. In parallel to this ongoing professionalization, other pressure-resistant investors such as activist hedge funds seem to lack sufficient legitimate power to be effective.

Originality/value – This chapter illustrates that the level of institutional investor activism depends largely on the relevant national legal framework. It also shows how institutional investor coalitions take advantage of new institutional pressures to enhance their legitimacy or increase the effectiveness of their action.

Details

Institutional Investors’ Power to Change Corporate Behavior: International Perspectives
Type: Book
ISBN: 978-1-78190-771-9

Keywords

Article
Publication date: 7 July 2020

Caroline Heqing Zhu

The purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.

Abstract

Purpose

The purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.

Design/methodology/approach

This paper identifies HFA interventions through a hand-collected sample of Schedule 13D filings between 1994 and 2016, and uses mechanical mutual fund fire sales as the instrument variable (IV) for the likelihood of such interventions. Armed with the instrument, this paper estimates firm's distribution, managerial compensation and investment policies in response to a change in the perceived likelihood of HFA interventions.

Findings

An increase in the HFA intervention likelihood leads to increases in shareholder distribution, decreases in CEO pay and investments and increases in operating performance. Compared to the sample average, a one standard deviation increase in the intervention likelihood leads to a 9.29% increase in the firm's payout ratio, a 7.42% decrease in CEO compensation, a 2.67% decrease in capital expenditures and a 4.96% decrease in R&D expenses. These changes are consistent with the threat of intervention curbing managerial empire-building behaviors and improving firm operation. The relationships are causal, significant and robust to a variety of alternative specifications and sample divisions.

Originality/value

Results of this paper suggest that as a mechanism for corporate governance, the threat of HFA is effective in preventing corporate policy deviations. They also demonstrate a stronger and broader impact of HFA on corporate policy than previously documented. By showing that HFA is an effective and viable mechanism for corporate governance, this study allows policymakers to make more informed decisions to whether increase hedge fund regulations or not.

Details

International Journal of Managerial Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Case study
Publication date: 20 January 2017

David P. Stowell, Tim Moore and Jeff Schumacher

Are hedge funds heroes or villains? Management of Blockbuster, Time Warner, Six Flags, Knight-Ridder, and Bally Total Fitness might prefer the “villain” appellation, but…

Abstract

Are hedge funds heroes or villains? Management of Blockbuster, Time Warner, Six Flags, Knight-Ridder, and Bally Total Fitness might prefer the “villain” appellation, but Enron, WorldCom, Tyco, and HealthSouth shareholders might view management as the real villains and hedge funds as vehicles to oust incompetent corporate managers before they run companies into the ground or steal them through fraudulent transactions. Could the pressure exerted by activist hedge funds on targeted companies result in increased share prices, management accountability, and better communication with shareholders? Or does it distract management from its primary goal of enhancing long-term shareholder value?

To determine the benefits and disadvantages of activist hedge fund activity from the perspective of corporate management and shareholders; to examine if a hedge fund's suggested corporate restructuring could create greater shareholder value; and to explain the changing roles and perspectives of hedge funds.

Details

Kellogg School of Management Cases, vol. no.
Type: Case Study
ISSN: 2474-6568
Published by: Kellogg School of Management

Keywords

Article
Publication date: 21 October 2013

Jan Fichtner

– The purpose of this paper is to examine in which ways hedge funds contribute to financialization.

Abstract

Purpose

The purpose of this paper is to examine in which ways hedge funds contribute to financialization.

Design/methodology/approach

Two already identified conduits through which financialization operates are applied to hedge funds.

Findings

The paper finds that hedge funds drive the phenomenon of financialization in two major ways, i.e. the financialization of corporations, and the financialization of markets. Hence, hedge funds can be conceived as agents of change for financialization.

Research limitations/implications

There are indications that hedge funds possess disciplinary power. Future research should address this pivotal point, even though such power will be difficult to prove empirically.

Social implications

Hedge funds have been found to potentially increase market volatility. In times of crisis, stricter regulation of these investors that take excessive risks seems prudent.

Originality/value

Through linking “hedge funds” with “financialization” this paper closes a research gap. In addition, the so far rather structural debate about financialization benefits from the actor-centered approach of this paper.

Details

critical perspectives on international business, vol. 9 no. 4
Type: Research Article
ISSN: 1742-2043

Keywords

Book part
Publication date: 17 July 2014

Rashid Ameer and Siti Sakinah Azizan

This chapter investigates the short-run and long-run economic implications of the shareholder activism in family-controlled firms in Malaysia.

Abstract

Purpose

This chapter investigates the short-run and long-run economic implications of the shareholder activism in family-controlled firms in Malaysia.

Design/methodology/approach

In order to investigate the impact of MSWG activism on RPT, we collected related party transactions data (sales and purchases) and inter-segment sales from the annual reports of the firms. We use standard event study methodology to calculate abnormal returns for the sample and control firms.

Findings

We do not find significant effect on the share performance in the short-run after MSWG engagement with the targeted firms. However in the long-run, our results show significant improvement in the MSWG targeted family-controlled firms’ performance compared to non-targeted family firms. We also examine the changes in the level of related party transactions. We do not find significant changes in the level of such sales and purchase transactions except for inter-segment sales.

Research limitations/implications

We argue that market is not strong form efficient because market did not react to the MSWG engagement with the management of these companies. We propose that future research should focus on the investors perception of the MSWG involvement so that a clear picture of its significance can be observable to other firms in the market.

Practical implications

Even though the activism practices are still less aggressive in Malaysia than those found in the developed countries such as the United Kingdom and the United States, however our results show that shareholder activism led by MSWG have impact on the family-owned firms performance in the long-run.

Originality/value

We argue that it is the first study to examine MSWG engagements with the family-controlled firms in Malaysia.

Details

Ethics, Governance and Corporate Crime: Challenges and Consequences
Type: Book
ISBN: 978-1-78350-674-3

Keywords

Content available

Abstract

Details

American Journal of Business, vol. 30 no. 1
Type: Research Article
ISSN: 1935-5181

1 – 10 of 314