Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this paper, we show that these positive effects of activism reach beyond the targets, as non-targeted peers make similar improvements under the threat of activism.
Peers with higher threat perception, as measured by director connections to past targets, are more likely to increase leverage and payout, decrease capital expenditures and cash, and improve return on assets and asset turnover. As a result, their valuations improve, and their probability of being targeted declines. Our results are not explained by time-varying industry conditions or competition effects whereby improved targets force their product market rivals to become more competitive.
This introductory chapter provides the reader with some figures about institutional investors’ role in the governance of listed companies in the US...
We analyze voting records for management proposals and find that investors today hold directors accountable for a much wider range of issues, such as...