| Author: | Do Ngoc, Olivier Dung |
| Title: | Hedge fund activism : a corporate finance perspective |
| Advisors: | Tong, Wilson (AF) |
| Degree: | D.B.A. |
| Year: | 2021 |
| Subject: | Hedge funds Stockholders Corporate governance Hong Kong Polytechnic University -- Dissertations |
| Department: | Faculty of Business |
| Pages: | 75 pages : color illustrations |
| Language: | English |
| Abstract: | Agency Theory is a well-established concept in management and financial literature and shareholder activism which can be construed as a disciplinary mechanism in the principal-agent relationship has become an increasingly popular tool governing this relationship. The increasing participation of institutional investors in the market, not only playing a role in prompting changes in corporate governance systems in general but also influencing policy and participating in broad discussions about corporate governance standards, is therefore not coming as a surprise. Activist pensions funds, hedge funds and individual activist investors pose themselves as the natural result of external markets for corporate control failing or becoming more restrictive. This was partially caused by the change in regulations and the rise of antitakeover laws following the excesses created by the disciplinary takeovers experienced in the late 1980s to monitor managers. Activism however raises a controversy as to the efficacy and appropriateness of these types of actions by institutional investors on long term stock value. The main question is, are activist institutional investors driving corporate governance improvements and therefore creating long-term shareholder value i.e. "doing public good"? Institutional investors initially are not set out to become activist shareholders and may therefore ultimately negatively impact the work and management of the executives of firms. Ultimately, they may not prove to be a solution for the inherent principal-agent problem. In this paper we will try and take a view on these important questions through the lens of more traditional corporate finance tools and show that, despite all the criticism activist investors attract, the net effect on firms taken over is generally positive and beneficial to the long-term shareholders of those firms. We will limit and focus our empirical study to firms targeted by Hedge Funds who are, as investors, not driven by alternative motives other than making money for their own investors and have since the late 2000s become a more prominent actor in the market for corporate governance. Specifically, we will look at four corporate finance aspects: first at the real option perspective and see whether hedge fund activism destroys growth options. Then we will try and see if their actions might increase stock price synchronicity or crash risk in targeted firms. We will then see if the increased leverage and dividend pay-out typically driven by activist actions negatively impacts investments and increases the financial constraints of the targeted firm. Last, we will look at the impact of Hedge Fund looking at target firms' ROA and Tobin's Q over a period of 3, 6 and 9 years after the activist event to see its impact over a longer time horizon. In conclusion, we want to determine whether activist investors are able to generate abnormal positive operational and financial improvements in target firms for themselves and for ordinary shareholders over the long-run. Hopefully our study can contribute to furthering the existing research in this field and to better understand and explain the effect of Hedge Fund activism on longer term shareholders. |
| Rights: | All rights reserved |
| Access: | restricted access |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| 5461.pdf | For All Users (off-campus access for PolyU Staff & Students only) | 1.05 MB | Adobe PDF | View/Open |
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