Intra-Industry Effects of Shareholder Activism - Market Reactions to Hedge Fund and Private Equity Investments

46 Pages Posted: 14 Jul 2008 Last revised: 20 Feb 2009

See all articles by Mark Mietzner

Mark Mietzner

Leipzig University of Applied Sciences - HTWK Leipzig

Denis Schweizer

Concordia University

Marcel Tyrell

Goethe University Frankfurt - Department of Finance; Zeppelin University

Date Written: June 2, 2008

Abstract

This paper investigates the valuation effects of industry rivals to firms targeted by hedge funds and private equity investors. We argue that both types of investors differ from other blockholders due to their strong motivation and ability to actively engage and monitor. By changing a target firms' objective functions toward more of a shareholder value orientation, we find that the new institutional investors improve firm operating performance. We find that the announcement of a change in ownership structure generates statistically significant intra-industry effects for rivals to private equity and hedge fund targets. The intra-industry effects for our private equity rival portfolio are inversely related to industry concentration, and positively related to a change in profitability, the market-to-book ratio and trading volume. Considering the rivals to hedge fund targets, we identify only the market-to-book ratio as an explanatory factor. While the the long-lasting return drift to hedge fund rivals is consistent with short-term results, we find that private equity rivals suffer statistically significant losses after the announcement, which can be explained by the expected negative competitive effects.

Keywords: Corporate Governance, Hedge Fund, Private Equity, Shareholder Activism, Rivals, Information Signaling, Intra-Industry Effects

JEL Classification: G14, G32, G34, G38

Suggested Citation

Mietzner, Mark and Schweizer, Denis and Tyrell, Marcel, Intra-Industry Effects of Shareholder Activism - Market Reactions to Hedge Fund and Private Equity Investments (June 2, 2008). Available at SSRN: https://ssrn.com/abstract=1159795 or http://dx.doi.org/10.2139/ssrn.1159795

Mark Mietzner (Contact Author)

Leipzig University of Applied Sciences - HTWK Leipzig ( email )

Leipzig
Germany

Denis Schweizer

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Marcel Tyrell

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Zeppelin University ( email )

Am Seemooser Horn 20
Friedrichshafen, Lake Constance 88045
Germany

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