Corporate control and shareholder activism in Germany: An empirical analysis of hedge fund strategies |
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| Institution: | 1. Deutsche Börse Senior Professor of Empirical Capital Market Research, University of Hamburg, Germany;2. Faculty of Business Administration, University of Hamburg, Germany;1. Department of Mathematics and School of Economics and Management, University of Bologna, Bologna, Italy;2. Department of Economics, Society and Politics, University of Urbino Carlo Bo, Italy;3. Department of Economics, University of Bamberg, Germany;1. Faculty of Business, City University of Macau, Macau, China;2. School of Business, Macau University of Science and Technology, Macau, China;1. Middle East Technical University, Faculty of Economics and Administrative Sciences, Department of Business Administration, Dumlup?nar Bulvar?, Ankara 06800, Turkey;2. Bilkent University, Faculty of Business Administration, Department of Management, Bilkent, Ankara 06800, Turkey;1. University of Leicester, School of Business, Economics, Finance and Accounting Division, University Road, Leicester LE1 7RH, UK;2. Alfaisal University, College of Business, Alzahrawi Street, Almathar, Riyadh 11533, Saudi Arabia |
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| Abstract: | Government-initiated reforms of the German financial system two decades ago shifted corporate control activities from universal banks to capital markets. Hedge funds took advantage of these changes by acquiring stakes in weakly governed firms. For 653 hedge fund interventions between 2000 and 2020, this study analyzes the changes in financial and operating performance and firm characteristics before and after the event. We also assess the probabilities that a firm becomes a target and that an attack creates shareholders value. On average, hedge funds increased returns, with the magnitude depending on the period, level of aggressiveness, institutional ownership, and industry. Crisis and non-crisis results differ, as hedge funds strategies are mostly successful in a rising stock market environment. Typically, hedge funds targeted smaller and more visible firms with higher sales growth, lower leverage, and higher institutional ownership. After the attack, firm profitability and cash holdings decreased, leverage increased, while investments in M&A and capex declined. This research offers new empirical evidence on the success of hedge fund strategies in Germany and on the performance of targeted firms. |
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