Hedge Fund Activism, Corporate Governance and Corporate Law

Download or read book Hedge Fund Activism, Corporate Governance and Corporate Law written by Dionysia Katelouzou and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the brand of shareholder activism hedge funds deploy by reference to a unique hand-collected dataset of 11 years' activist hedge funds' campaigns across 25 countries. The analysis has two core elements, one of which is to chart the emergence of hedge fund activism outside the United States and the other being to account why hedge fund activism has developed differently across the sample countries. Both issues have been to date only tangentially explored. This study is the first one to seek to determine the extent to which corporate law is a determinant of the hedge fund activism phenomenon using a fresh approach which combines theoretical and comparative legal analysis with empirical methods. While a single variable is unlikely to account for the emergence of hedge fund activism, the study describes hedge fund activism as a game of three sequential stages as a heuristic device and identifies market and legal parameters for each stage. To test the hypotheses advanced for the emergence of hedge fund the study draws upon the law and finance literature. For instance, to account to what extent the rights bestowed on shareholders by corporate law influence hedge fund activism the study uses the CBR shareholder rights index. The results indicate that the extent to which law matters depends on the stage which activism has reached. The study also puts hedge fund activism in its corporate governance context. Activist hedge funds' interventions have been envisioned as a mechanism for ensuring effective control of managerial discretion. Opponents of hedge fund activism contend, however, that this new breed of activists has a dark side that raises various concerns. Activist hedge funds have been considered: as exacerbating short-termism; as being mainly aggressive to the incumbents; as bearing similarities to the 1980s-raiders; and as engaging in distorting equity decoupling techniques. The study presents new empirical data that shows that the perceived negative side-effects of hedge funds activism are greatly exaggerated: they are myths. Cumulatively, these findings question whether hedge fund activism warrants any type of legislative response so far as the goal of shareholder value maximization is succeeded.