Hostile Activism: Hostile Tactics or Hostile Hedge Funds?

I examine reputation building by activist hedge funds and document three new findings with regard to hostile activism. First, there is evidence of a permanent reputation effect to hostile activism. Activist hedge funds that have engaged in hostile tactics, receive on average a 3% higher CAR [-10, 10] on their subsequent non-hostile campaigns, compared to hedge funds that have never engaged in hostile tactics. Second, I find that this abnormal return is positively related to the level of hostile reputation of the campaigning hedge fund (measured by the total and relative frequency of past hostile campaigns). Lastly, I find that activist hedge funds with more hostile reputation modify their non-hostile activism style to engage "hostile-like" targets and pursue "hostile-like" objectives, but withhold the use of hostile tactics. I find that in those non-hostile campaigns, hostile-style activists receive a higher announcement period abnormal return that is not explained by target characteristics, hedge fund characteristics, campaigns characteristics or time specific events.

Autor:

Hugo Benedetti

Fecha de Publicación:

12 de noviembre del 2019