Shareholder Activism by Institutional Investors: Evidence from CalPERS

This study examines firm characteristics that lead to shareholder activism and analyzes the effects of activism on target firm governance structure, shareholder wealth, and operating performance for the 51 firms targeted by CalPERS over the 1987–93 period. Firm size and level of institutional holdings are found to be positively related to the probability of being targeted, and 72 percent of firms targeted after 1988 adopt proposed changes or make changes resulting in a settlement with CalPERS. Shareholder wealth increases for firms that adopt or settle and decreases for firms that resist. No statistically significant change in operating performance is found.     

对冲基金激进主义策略的研究综述

近些年,对冲基金激进主义策略受到越来越多基金管理者的关注,其研究重心也开始从资本市场价格变动转向标的企业管理层。对冲基金激进主义策略呈现出"改善公司治理、注重目标企业长期发展、减少委托代理冲突"等特点。本文针对该策略研究的转变,从对冲基金激进主义策略特征、市场有效性、策略研究方法以及对公司治理的改善等几个方面,对对冲基金激进主义策略进行综述。     

The Optimal Size of Hedge Funds: Conflict between Investors and Fund Managers

This study examines whether the standard compensation contract in the hedge fund industry aligns managers’ incentives with investors’ interests. I show empirically that managers’ compensation increases when fund assets grow, even when diseconomies of scale in fund performance exist. Thus, managers’ compensation is maximized at a much larger fund size than is optimal for fund performance. However, to avoid capital outflows, managers are also motivated to restrict fund growth to maintain style‐average performance. Similarly, fund management firms have incentives to collect more capital for all funds under management, including their flagship funds, even at the expense of fund performance.     

Institutional Investors and Shareholder Litigation

We examine whether institutional investors are able to avoid future litigation. Our results show that institutions provide a fiduciary role by decreasing or eliminating their positions in sued firms well before litigation begins. We also find that institutional groups with high monitoring ability (independent investment advisors and mutual funds) are more proactive in their trading behavior than are institutions with low monitoring ability (banks, insurance companies, and unclassified institutions such as endowments, foundations, and self-managed pension funds). We find that percentage changes in institutional ownership are correlated with public information available more than two quarters before litigation.     

Hedge Funds and Chapter 11

This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter's loss of exclusive rights to file reorganization plans, CEO turnover, and adoptions of key employee retention plan, while their effect on secured creditors manifests in higher probabilities of emergence and payoffs to junior claims.     

Hedge Funds and Corporate Innovation

Using National Bureau of Economics Research patent data and hedge fund holdings in US firms from 1998 to 2006, we examine the effect of hedge fund ownership on corporate innovation. We find that hedge fund ownership increases both patent quantity and quality, even after controlling for endogeneity. Hedge funds appear to increase innovation and firm value by increasing research and development (R&D) productivity and innovation efficiency rather than R&D input. Our study suggests another channel through which hedge funds may enhance firm value, contributing to the literature on hedge fund ownership.     

Hedge Funds and the Technology Bubble

This paper documents that hedge funds did not exert a correcting force on stock prices during the technology bubble. Instead, they were heavily invested in technology stocks. This does not seem to be the result of unawareness of the bubble: Hedge funds captured the upturn, but, by reducing their positions in stocks that were about to decline, avoided much of the downturn. Our findings question the efficient markets notion that rational speculators always stabilize prices. They are consistent with models in which rational investors may prefer to ride bubbles because of predictable investor sentiment and limits to arbitrage.     

Shareholder Activism through Proxy Proposals: The European Perspective

This paper is the first to investigate the corporate governance role of shareholder‐initiated proxy proposals in European firms. Proposal submissions in Europe remain infrequent compared to the USA, especially in Continental Europe. In the UK proposals typically relate to a proxy contest seeking board changes, while in Continental Europe they are more focused on specific governance issues. There is some evidence that proposal sponsors are valuable monitors, because the target firms tend to underperform and have low leverage. Sponsors also consider the ownership structure of the firm, because proposal probability increases in the target's ownership concentration and the equity stake of institutional investors. While proposals enjoy limited voting success across Europe, they are relatively more successful in the UK. The outcomes are strongest for proposals targeting the board but are also affected by the target characteristics including the CEO's pay‐performance sensitivity. Proposals are met with a significant negative abnormal return of ?1.23%, when they are voted upon at general meetings. The low voting support gathered by proposals and the strongly adverse market reaction suggest that shareholders of European companies use proposals as an emergency brake rather than a steering wheel.     

Money Market Funds and Shareholder Dilution

This paper analyzes the effects of a share valuation technique, amortized cost valuation, on institutional money market funds (MMFs) and their investors. The possibility of arbitrage between securities priced at market value and amortized MMFs is investigated. It is found that significant dilution has taken place as a result of this valuation technique. Losses per share have been about 10 basis points per year. Evidence that arbitrageurs will take advantage of a misvaluation of the MMF and cause losses to other shareholders may suggest that some investors should reconsider the desirability of amortized MMFs for their investments.     

Session Topic: Individual Investors and Mutual Funds

Summary . The modern theory of finance suggests that most investors should put part or all of their money into a “market portfolio” mixed with borrowing or lending. Empirical evidence generally supports the theory, but there are some unanswered questions about the composition of the best market portfolio, about the apparent attractiveness of low risk stocks relative to high risk stocks, and about ways of minimizing transaction costs. Attempts to create a fund based on these principles and to make it available to a large number of investors have uncovered some important problems. Legal costs due to government regulation, the costs of managing a fund, and especially the costs of selling it are all much higher than one might expect. Despite these problems, efforts to create such funds seem destined for eventual success.     

The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium

Rational theories of the closed‐end fund premium puzzle highlight fund share and asset illiquidity, managerial ability, and fees as important determinants of the premium. Several of these attributes are difficult to measure for mutual funds, and easier to measure for hedge funds. This paper employs new data from a secondary market for hedge funds, discovers a closed‐hedge fund premium that is highly correlated with the closed‐end mutual fund premium, and shows that the closed‐hedge fund premium is well explained by variables suggested by rational theories. Sentiment‐based explanations do not find support in the data.     

Risks and Portfolio Decisions Involving Hedge Funds

This article characterizes the systematic risk exposures ofhedge funds using buy-and-hold and option-based strategies.Our results show that a large number of equity-oriented hedgefund strategies exhibit payoffs resembling a short positionin a put option on the market index and therefore bear significantleft-tail risk, risk that is ignored by the commonly used mean-varianceframework. Using a mean-conditional value-at-risk framework,we demonstrate the extent to which the mean-variance frameworkunderestimates the tail risk. Finally, working with the systematicrisk exposures of hedge funds, we show that their recent performanceappears significantly better than their long-run performance.     

Hedge Funds: Performance, Risk, and Capital Formation

We use a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004. While the average fund-of-funds delivers alpha only in the period between October 1998 and March 2000, a subset of funds-of-funds consistently delivers alpha. The alpha-producing funds are not as likely to liquidate as those that do not deliver alpha, and experience far greater and steadier capital inflows than their less fortunate counterparts. These capital inflows attenuate the ability of the alpha producers to continue to deliver alpha in the future.     

中小股东积极主义与上市公司投资效率

随着我国资本市场中小股东积极主义态势的凸显,中小股东在公司治理中扮演着越来越重要的角色。因此构建中小股东股东大会参与程度指标,检验中小股东参与度对上市公司投资效率的影响。研究表明,中小股东参与度的提高有助于降低上市公司非效率投资水平,并能有效降低源自上市公司自由现金流的过度投资,但对产生于融资约束的投资不足影响有限。进一步研究发现,中小股东治理作用在国有企业以及股权较为分散的公司中更显著。这说明我国资本市场中小股东积极主义能在一定程度上发挥有效的公司治理功能,同时也为监管部门通过制度建设发挥中小股东积极作用提供了政策依据。     

基金业绩、投资者有限注意力与基金申购

投资者注意力作为一种稀缺的认知资源对资产定价、投资决策等有重要影响。本文使用百度指数的用户关注度作为注意力的代理变量,考察了投资者有限注意力对基金投资决策的影响．分析了基金市场中影响投资者注意力的因素。当投资者购买基金时,由于面对可供选择的庞大数量基金．投资者的有限注意力将影响基金申购,而且有证据表明投资者注意到基金以后经过两到五周的时间才会中购基金;当投资者卖出基金时,由于仅面对少数几只己经买入的基金,投资者注意力不会影响基金赎回。此外,本文发现短期业绩较好和短期波动较大的基金更能吸引投资者的注意。同时基金的营销手段对于吸引投资者的注意力起到了良好的作用。     

中小股东积极主义与上市公司投资效率

随着我国资本市场中小股东积极主义态势的凸显,中小股东在公司治理中扮演着越来越重要的角色。因此构建中小股东股东大会参与程度指标,检验中小股东参与度对上市公司投资效率的影响。研究表明,中小股东参与度的提高有助于降低上市公司非效率投资水平,并能有效降低源自上市公司自由现金流的过度投资,但对产生于融资约束的投资不足影响有限。进一步研究发现,中小股东治理作用在国有企业以及股权较为分散的公司中更显著。这说明我国资本市场中小股东积极主义能在一定程度上发挥有效的公司治理功能,同时也为监管部门通过制度建设发挥中小股东积极作用提供了政策依据。     

Hedge Fund Activism, Corporate Governance, and Firm Performance

Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.     

Institutional Investors and Private Equity

Entrepreneurial finance literature has highlighted that institutionalinvestors are the main contributors to private equity funds.This paper complements these findings by documenting that institutionalinvestors also invest directly in private equity. A major concernfor such investments is the higher agency costs associated withprivate equity. We show that institutions invest in privatefirms with governance mechanisms that tend to reduce the expectedagency costs and risk of minority expropriation. Good governancemechanisms further allow institutional investors to enjoy thebenefits of syndication and thereby reduce idiosyncratic risk.In addition, we show that institutional investments tend tobe followed by further improvements in corporate governanceand tend to occur in high-growth firms within research and developmentintensive industries.