Activist vs. Passivist Hedge Funds - An Empirical Study and Implications
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The enormous growth of the hedge fund industry suggests that hedge fund professionals are especially gifted in investing money. This provides the rationale for the research objective of this study, namely the answering of the question whether, and potentially how, hedge fund blockholders are able to impact shareholder values of listed companies. For this purpose, short-term event studies are conducted to analyse abnormal returns around the initial disclosure of shareholdings by hedge funds. Based on this, key return drivers and the sustainability of the identified short-term returns are assessed with cross-sectional regressions, long-term event studies and qualitative evaluations of activist campaigns. The results provide strong evidence that the identity and the investment approaches of the involved hedge fund blockholders matter. Short-term event studies indicate that disclosed hedge fund blockholdings cause abnormal returns around the initial disclosure by hedge funds. This effect is mainly driven by the subset of activist hedge funds. While the positive short-term returns are in line with previous US- focused research, long-term results reveal differences and thus point out the relevance of corporate governance systems. The findings are not only of utmost importance for an academic audience, but also for practitioners as implications for other stock market investors, target companies and hedge fund investors are derived.