The Early Returns to International Hedge Fund Activism: 2000–2010
| Author | Jeremy Grant,Hannes Wagner,Marco Becht,Julian Franks |
| DOI | http://doi.org/10.1111/jacf.12330 |
| Date | 01 March 2019 |
| Published date | 01 March 2019 |
IN THIS ISSUE:
Agency
Capitalism
8The Rise of Agency Capitalism and the Role of Shareholder
Activists in Making It Work
Ronald J. Gilson, Columbia and Stanford Law Schools, and
Jeffrey N. Gordon, Columbia Law School
23 e Eect of Shareholder Approval of Equity Issuances
Around the World
Clifford G. Holderness, Boston College
42 Does Mandatory Shareholder Voting Prevent Bad Acquisitions?
e Case of the United Kingdom
Marco Becht, Université libre de Bruxelles, CEPR, and ECGI; Andrea Polo, Luiss University,
Universitat Pompeu Fabra, EIEF, Barcelona GSE, CEPR and ECGI; and Stefano Rossi, Bocconi
University, CEPR, and ECGI
62 e Early Returns to International Hedge Fund Activism: 2000-2010
Marco Becht, Université libre de Bruxelles, CEPR, and ECG; Julian Franks, London Business
School, CEPR, and ECGI; Jeremy Grant, Berenberg Bank; and Hannes Wagner, Bocconi University,
ECGI, and IGIER
81 How Has Takeover Competition Changed Over Time?
Tingting Liu, Iowa State University, and Harold Mulherin, University of Georgia
95 Do Large Blockholders Reduce Risk?
David Newton and Imants Paeglis, Concordia University
113 Estimating the Equity Risk Premium and Expected Equity Rates
of Return: e Case of Canada
Laurence Booth, University of Toronto
126 Save the Buyback, Save Jobs
Greg Milano and Michael Chew, Fortuna Advisors
VOLUME 31
NUMBER 1
WINTER 2019
APPLIED
CORPORATE FINANCE
Journal of
62 Journal of Applied Corporate Finance • Volume 31 Number 1 Winter 2019
I
Take Italy, for example. Although only 42 Italian companies
were targeted by hedge funds, such rms represented 13.3 of
every 1,000 companies listed on Italian stock exchanges—
which is not that far behind the 19.6 per 1,000 U.S. listed
companies targeted by activists.
What’s also important to recognize is that because activists’
ownership stakes—11% in the average engagement—were far
from conferring control, they required the support of other
investors, including pension funds and other activists. And as
our ndings suggest, the pattern of institutional ownership
across countries was both an important inuence and deter-
minant of the success of activism across countries.
Although most of the 330 activist funds in our sample
have a clear domestic focus, foreign engagements accounted
for 24% of the total in our study. And the fact that such
engagements were split roughly equally between U.S.-based
and non-U.S.-based activists provided us with the opportunity
to compare the eectiveness of domestic and foreign models
of activism. Hedge fund engagements also frequently involve
more than one hedge fund working together, formally or
informally, in groups known as “wolf packs.” We found that
such groups were involved in almost one quarter of all engage-
ments, and that they achieved some of the highest returns for
target company shareholders.
is brings us to the central question addressed by our
study: To what extent do activist engagements benet the
other, presumably longer-term, shareholders whose inter-
ests they claim to represent? e conventional evaluation
of activists’ performance begins by looking at the abnormal
(or market-adjusted) return on the target companies’ shares
during a period of days (or weeks) that surrounds the public
announcement of the activist’s having acquired a stake—in
many if not most cases, along with a set of proposals for change.
Our study found abnormal announcement (or “disclosure”)
returns of 7.0%, on average, for the target companies based
in the United States during a 40-day “window” stretching
20 days before to 20 days after the announcement date—
by Marco Becht, Solvay Brussels School, Université libre de Bruxelles, CEPR, and ECGI; Julian Franks, London
Business School, CEPR, and ECGI; Jeremy Grant, Manalo LLP; Hannes Wagner, Bocconi University, ECGI, and IGIER*
n an article published recently in the Review of Financial Studies, we presented the
ndings of the rst comprehensive study of worldwide hedge fund activism—one
in which we examined the effectiveness of some 1,740 separate “engagements”
by 330 different hedge funds operating in 23 countries in Asia, Europe, and North America
during the period 2000-2010. By far the largest of those markets for shareholder activism
was the United States (whose companies were the targets of 1,125 of those engagements),
with Japan (184) and the United Kingdom (165) nishing a distant second and third. But
even with this concentration among just three countries, activism has become a signicant
global phenomenon, especially when viewed relative to the smaller size of the stock markets
in other countries.
e Early Returns to International Hedge Fund
Activism: 2000-2010
*This article summarizes the ndings of, and draws heavily on, the authors’ article,
“The Returns to Hedge Fund Activism: An International Study,” The Review of Financial
Studies, Vol. 30 No. 9 (2017), pp. 2933-2971.
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