LBS Research Online
M Becht, J R Franks, J Grant and H F Wagner
Returns to Hedge Fund Activism: An International Study
Article
This version is available in the LBS Research Online repository:
https://lbsresearch.london.edu/
id/eprint/831/
Becht, M, Franks, J R, Grant, J and Wagner, H F
(2017)
Returns to Hedge Fund Activism: An International Study.
Review of Financial Studies, 30 (9). pp. 2933-2971. ISSN 0893-9454
DOI: https://doi.org/10.1093/rfs/hhx048
Oxford University Press (OUP)
https://academic.oup.com/rfs/article/30/9/2933/385...
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Returns to Hedge Fund Activism: An International Study
Marco Becht
Solvay Brussels School, Université libre de Bruxelles, CEPR, and ECGI
Julian Franks
London Business School, CEPR, and ECGI
Jeremy Grant
Berenberg Bank
Hannes F. Wagner
Bocconi University and IGIER
Review of Financial Studies, forthcoming
27 May 2014
Revised 15 September 2016
We are grateful to Robin Greenwood and Andrew Karolyi (the editors); two anonymous referees; and
John Armour, Tara Bhandari, Alon Brav, Nick Gantchev, Pedro Matos, Janis Skrastins, Oren Sussman,
Phillip Goldstein (Bulldog Investors), David Trenchard (formerly Knight Vinke), John Armstrong-
Denby (Edmond de Rothschild), and Mark Levine (Elliott Management). We also thank the
participants at the Transatlantic Corporate Governance Dialogue (TCGD) in Washington DC in
December 2011, the EU-ASIA Corporate Governance Dialogue Inaugural Conference in Tokyo in June
2012, the European Financial Management Association in Rome in June 2014, the European Finance
Association in Lugano in August 2014, the 4nations Cup in Rome in May 2015, and the Western
Finance Association in Seattle in June 2015 and seminar participants at Bar Ilan, Bocconi University,
the Hanken School of Economics, Koç Business School, the London Business School, Luxembourg
School of Finance, Rotterdam University, University of Oxford, and Tilburg University for comments.
Song Zhang and Yordana Mavrodieva provided excellent research assistance. We acknowledge
research support from the ESRC [grant no. R060230004], the London Business School’s Centre for
Corporate Governance, the BNP Paribas Hedge Fund Centre, the Goldschmidt Chair at the Solvay
Brussels School of Economics and Management, Université libre de Bruxelles, and the PEGGED
(Politics, Economics and Global Governance: The European Dimensions) collaborative research
project supported by the Seventh Framework Programme for Research and Technological
Development [contract no. SSH7-CT-2008-217559]. Send correspondence to Marco Becht, Universite
libre de Bruxelles, Avenue F. D. Roosevelt 50, CP114, 1050 Brussels, Belgium; telephone: +32 2 650
4466. E-mail: mbecht@ulb.ac.be.
Returns to Hedge Fund Activism: An International Study
Abstract
This paper provides evidence on the incidence, characteristics, and performance of activist
engagements across countries. We find that the incidence of activism is greatest with high institutional
ownership, particularly for U.S. institutions. We use a sample of 1,740 activist engagements across 23
countries and find that almost one-quarter of engagements are by multi-activists engaging the same
target. These engagements perform strikingly better than single activist engagements. Engagement
outcomes, such as board changes and takeovers, vary across countries and significantly contribute to
the returns to activism. Japan is an exception, with high initial expectations and low outcomes. (JEL
G32)
1
This paper provides evidence on the incidence, characteristics, and performance of activist
engagements across countries. The scope of this paper allows us to address the question of how
different patterns of ownership and institutional arrangements influence the growth and performance
of activism. Our paper is the first comparative study of publicly observable activism across 23
countries in Asia, Europe, and North America. We analyze 1,740 activist interventions, mainly
initiated by hedge funds and focus funds, for the 2000-2010 period. The three largest markets for
shareholder activism are the United States (1,125 interventions), Japan (184 interventions), and the
United Kingdom (165 interventions). Despite this apparent concentration, activism is a significant
phenomenon relative to the size of stock markets in other countries (e.g., Italy). Further, because
activists hold limited stakes—11%, on average—they require the support of other investors, including
pension funds and other activists. We interpret our results as showing that the pattern of ownership is
an important source of influence on activism activity across countries.
Our sample covers 330 different activist funds. Most funds have a clear domestic focus, but
foreign engagements account for 24% of the total, roughly equally split between U.S.-based and non-
U.S.-based activists, allowing us to compare domestic and foreign models of activism. Hedge fund
engagements frequently involve more than one hedge fund (“wolf pack”) that may coordinate
formally or informally. We estimate that wolf packs are associated with almost one quarter of all
engagements and we show that they achieve some of the highest returns for target shareholders.
How do activist engagements perform? The conventional measure of activists’ performance is
the abnormal return around the public announcement of the activist’s stake. We find abnormal
announcement returns of 7.0% for the United States during a (-20, 20) day window, which are virtually
identical to those reported by Brav et al. (2008) and related studies. The European and Asian
2
announcement returns are significant at 4.8% and 6.4%, respectively, and are comparable to the United
States.
How successful are activists in their engagements with target firms? For this analysis, we
identify the outcomes of each engagement, including changes to payout policy, governance, corporate
restructuring and takeovers. Compiling data on activist outcomes internationally is particularly
challenging; while activists engaging U.S.-listed firms need to provide information on the stated
purpose of their investment in Schedule 13D filings, no exact equivalent exists elsewhere. Through
extensive news searches, we identify outcomes of the engagements.
For the entire sample, the unconditional probability of an activist being successful in achieving
at least one engagement outcome is 53%. However, the incidence of outcomes varies considerably
across countries. In North America activists achieve outcomes in 61% of all engagements and 50% in
Europe, but only 18% in Asia. Japan, in particular, is a country of unfulfilled expectations with high
disclosure returns but very few outcomes.
We also show that the incidence of engagement outcomes and the type of outcome dramatically
affect the abnormal returns over the entire engagement, from block disclosure to exit. The
announcement of an engagement outcome contributes significantly to holding period returns during the
engagement. Abnormal returns around the announcement of outcomes average 6.4% across all
countries during a (-20, 20) window, with the highest returns of 8.8% in Europe, 6.0% in North
America and 2.7% in Asia. These returns are in addition to the block disclosure returns for the
subsample of engagements with successful outcomes. To investigate the potential importance of
governance changes initiated by the activist, we test whether engagements with multiple outcomes, for
example, a board change or spin-off followed by a takeover, have a higher total return than a single
outcome, such as a takeover. The differences are striking, particularly engagements with multiple
