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Hedge Funds vs. Private Equity Funds as Shareholder Activists – Differences in Value Creation



(Please do not quote) This paper analyzes market reactions triggered by announcements that hedge funds and private equity investors purchase large blocks of voting rights. We argue that changes in shareholders’ wealth are related to the opportunity, possibility and motivation of being an active blockholder, who successfully reduces agency problems. The investigation is based on a unique data set of German public listed companies and relates their short-term and long-term stock performance to several corporate characteristics and market variables. We find positive abnormal returns following an announcement that an active shareholder acquired at least 5% of a company’s voting rights. Interestingly variables proxying for agency costs explain the market reaction for our private equity sub-sample. However, ownership characteristics provide only poor evidence for explaining the market reaction within our hedge fund sub-sample. Considering the long-term stock price performance, we observe considerably negative buyand-hold abnormal returns for both samples. However, our results indicate a misinterpretation by the capital market regarding a hedge fund’s motivations and activities

Topics: JEL Classification, G14, G32, G34, G38 Keywords, Abnormal Returns, Corporate Governance, Hedge Fund, Private Equity
Year: 2007
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