Does hedge fund activism improve investment efficiency?

• 成果类型: Article
• 署名作者: Deb, Saikat Sovan; Duong, Huu Nhan; Singh, Amanjot; Singh, Harminder
• 署名单位: Deakin University; Monash University; Western University (University of Western Ontario)
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-023-09776-7
• 发表日期: 2024
• 页码: 2551-2577
• 关键词: financial-reporting quality; free cash flow; corporate governance; AGENCY COSTS; SHAREHOLDER ACTIVISM; firm; COMPENSATION; INFORMATION; decisions

摘要

We examine the impact of hedge fund activism (HFA) on the investment efficiency of target firms. We find that target firms' investment efficiency improves after the active involvement of hedge funds. This improvement is mainly evident for HFA campaigns with investment strategy-related reforms as one of the main stated objectives. Among investment strategy-related HFA campaigns, the changes in investment efficiency are more pronounced when hedge funds obtain board representation or privately settle with target firms. HFA improves the investment efficiency of target firms by mitigating overinvestment rather than underinvestment problems. Additional tests reveal that target firms with no resistance to HFA and higher free cash flow accommodate this improvement in investment efficiency following HFA. Overall, our findings highlight the role of HFA as a governance mechanism in improving investment efficiency and influencing managers to reduce overinvestment.