Do Hedge Funds Undertake Activism in the Bond Market? Evidence from Bondholders' Responses to Delay in Financial Reporting

• 成果类型: Article
• 署名作者: Gao, Yu; Smith, Abbie; Wang, Xue
• 署名单位: University of St Thomas Minnesota; University of Chicago; University System of Ohio; Ohio State University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12769
• 发表日期: 2022
• 页码: 1542-1582
• 关键词: choice

摘要

We investigate whether hedge funds (HFs) undertake activism in the corporate bond market. Although there is a growing empirical literature investigating HF activism in the equity market, we know little about the role of HF activists in the corporate bond market. The empirical setting is the active enforcement of bondholders' rights during 2003-2007, triggered by issuers' violation of a standard bond covenant requiring timely financial reporting. Using HF holding data of convertible bonds in Form 13F filings, we identify HF interventions. The patterns of HF ownership suggest that HFs actively purchased convertible bonds to increase their ownership before the issuance of default notices. Relative to other interventions, HF interventions are more likely to target companies with higher levels of cash holdings but less likely to target companies with a greater amount of private debt outstanding. Furthermore, we find that HF interventions are associated with elevated bond trading frequency before late filing notifications and issuances of default notices, as well as a wealth transfer from stockholders and non-intervening bondholders to intervening bondholders. Taken together, the empirical evidence demonstrates that HFs take actions to force the issuance of default notices in response to delay in financial reporting, suggesting that the primary objective of HF activism in this setting is to extract short-term profit from bond issuers.