Hedge Funds in Corporate Governance and Corporate Control.

Hedge funds have become critical players in both corporate governance and corporate control. In this article, we document and examine the nature of hedge fund activism, how and why it differs from activism by traditional institutional investors, and its implications for corporate governance and regulatory reform. We argue that hedge fund activism differs from activism by traditional institutions in several ways: it is directed at significant changes in individual companies (rather than small, systemic changes), it entails higher costs, and it is strategic and ex ante (rather than intermittent and ex post). The reasons for these differences may lie in the incentive structures of hedge fund managers as well as in the fact that traditional institutions face regulatory barriers, political constraints, or conflicts of interest that make activism less profitable than it is for hedge funds. But the differences may also be due to the fact that traditional institutions pursue a diversification strategy that is difficult to combine with strategic activism. Although hedge funds hold great promise as active shareholders, their intense involvement in corporate governance and control also potentially raises two kinds of problems: The interests of hedge funds sometimes diverge from those of their fellow shareholders; and the intensity of hedge fund activism imposes substantial stress that the regulatory system may not be able to withstand. The resulting problems, however, are relatively isolated and narrow, do not broadly undermine the value of hedge fund activism as a whole, and do not warrant major additional regulatory interventions. The sharpest accusation leveled against activist funds is that activism is designed to achieve a short-term payoff at the expense of long-term profitability. Although we consider this a potentially serious problem that arguably pervades hedge fund activism, we conclude that a sufficient case for legal intervention has not been made. This conclusion results from the uncertainties about whether short-termism is in fact a real problem and how much hedge fund activism is driven by excessive short-termism. But, most importantly, it stems from our view that market forces and adaptive devices taken by companies individually are better designed than regulation to deal with the potential negative effects of hedge fund short-termism while preserving the positive effects of hedge-fund activism

Parallel Algorithm for Solving Kepler's Equation on Graphics Processing Units: Application to Analysis of Doppler Exoplanet Searches

[Abridged] We present the results of a highly parallel Kepler equation solver using the Graphics Processing Unit (GPU) on a commercial nVidia GeForce 280GTX and the "Compute Unified Device Architecture" programming environment. We apply this to evaluate a goodness-of-fit statistic (e.g., chi^2) for Doppler observations of stars potentially harboring multiple planetary companions (assuming negligible planet-planet interactions). We tested multiple implementations using single precision, double precision, pairs of single precision, and mixed precision arithmetic. We find that the vast majority of computations can be performed using single precision arithmetic, with selective use of compensated summation for increased precision. However, standard single precision is not adequate for calculating the mean anomaly from the time of observation and orbital period when evaluating the goodness-of-fit for real planetary systems and observational data sets. Using all double precision, our GPU code outperforms a similar code using a modern CPU by a factor of over 60. Using mixed-precision, our GPU code provides a speed-up factor of over 600, when evaluating N_sys > 1024 models planetary systems each containing N_pl = 4 planets and assuming N_obs = 256 observations of each system. We conclude that modern GPUs also offer a powerful tool for repeatedly evaluating Kepler's equation and a goodness-of-fit statistic for orbital models when presented with a large parameter space.Comment: 19 pages, to appear in New Astronom

How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law

This Article explores the relationship between takeovers, legal doctrines, and private ordering. The authors first argue that the sanctioning of the poison pill and the just say no defense by Delaware courts was far less consequential than feared by its critics and hoped for by its proponents. Rather, market participants adapted to these legal developments by embracing two adaptive devices--greater board independence and increased incentive compensation--which had the effect of transforming the pill, a potentially pernicious governance tool, into a device that is plausibly in shareholders\u27 interest. Interestingly, however (and for critics of the pill, disconcertingly), market participants neither tried to change the law nor opt out of it. The authors place these developments in a broader perspective. They draw a distinction between bilateral devices--which enjoy support from both stockholders and managers--and unilateral devices, and argue that bilateral devices are more likely to be welfare-enhancing, are more stable, are privileged by Delaware law, and tend to further Delaware\u27s status as leading domicile for public corporations. Greater board independence and increased incentive compensation are examples of such bilateral devices. The authors conclude by examining why Delaware courts embraced the poison pill (at the time, a largely unilateral device, albeit one with bilateral features) and how they should deal with the use of pills by companies with staggered boards

The Hanging Chads of Corporate Voting

Never has voting been more important in corporate law. With greater activism among shareholders and the shift from plurality to majority voting for directors, the number of close votes is rising. But is the basic technology of corporate voting adequate to the task? In this Article, we first examine the incredibly complicated system of US corporate voting, a complexity that is driven by the underlying custodial ownership structure, by dispersed ownership and large trading volumes, and by the rise in short-selling and derivatives. We identify three ways in which things predictably go wrong: pathologies of complexity; pathologies of ownership; and pathologies of misalignment of interests. We then discuss the current legal treatment of these pathologies and consider a variety of directions for reform, ranging from incremental modifications to fundamental redesign. We show that, absent a fundamental reconstruction of the ownership structure, the existing system will continue to be noisy, imprecise and disturbingly opaque. The problems with the existing system pose fundamental challenges for both proponents of direct shareholder democracy, who advocate more extensive voting rights for shareholders, and for proponents of indirect shareholder democracy, who advocate deference to a board of directors the legitimacy of which ultimately also rests on shareholder elections

Embattled CEOs

In this paper, we argue that chief executive officers of publicly-held corporations in the United States are losing power to their boards of directors and to their shareholders. This loss of power is recent (say, since 2000) and gradual, but nevertheless represents a significant move away from the imperial CEO who was surrounded by a hand-picked board and lethargic shareholders. After discussing the concept of power and its dimensions, we document the causes and symptoms of the decline in CEO power in several areas: share ownership composition and shareholder activism; governance rules and the board response to shareholder activism; regulatory changes related to shareholder voting; changes in the board of directors; and executive compensation. We argue that this decline in CEO power represent a long-term trend, rather than a temporary response to economic and political conditions. The decline in CEO power has several important implications, including implications with respect to the possibility of a regulatory backlash against certain newly empowered shareholder groups, the type of persons who will serve on corporate boards in the future, the type of shareholder initiatives that will be introduced and the corporate response to them, the convergence of corporate laws across countries, and the source of resistance to acquisitions and the legal regulation of target defenses

Economic evaluation of ASCOT-BPLA: Antihypertensive treatment with an amlodipine-based regimen is cost-effective compared to an atenolol-based regimen

Copyright © 2010 BMJ Publishing Group Ltd & British Cardiovascular Society. Internal or personal use of this material is permitted. However, permission to reprint/republish this material must be obtained from the Publisher.Objective: To compare the cost effectiveness of an amlodipine-based strategy and an atenolol-based strategy in the treatment of hypertension in the UK and Sweden. Design: A prospective, randomised trial complemented with a Markov model to assess long-term costs and health effects. Setting: Primary care. Patients: Patients with moderate hypertension and three or more additional risk factors. Interventions: Amlodipine 5–10 mg with perindopril 4–8 mg added as needed or atenolol 50–100 mg with bendroflumethiazide 1.25–2.5 mg and potassium added as needed Main outcome measures: Cost per cardiovascular event and procedure avoided, and cost per quality-adjusted life-year gained. Results: In the UK, the cost to avoid one cardiovascular event or procedure would be €18 965, and the cost to gain one quality-adjusted life-year would be €21 875. The corresponding figures for Sweden were €13 210 and €16 856. Conclusions: Compared with the thresholds applied by NICE and in the Swedish National Board of Health and Welfare’s Guidelines for Cardiac Care, an amlodipine-based regimen is cost effective for the treatment of hypertension compared with an atenolol-based regimen in the population studied.The study was supported by the principal funding source, Pfizer, New York, USA

Hedge Fund Activism in the Enforcement of Bondholder Rights

Activist hedge funds have transformed how bondholders respond to violations of their contractual rights. Insurance companies and mutual funds, the traditional investors in bonds, often slept on their rights and turned active only little and late. Hedge funds, by contrast, seek out opportunities for activism in order to make profits. In the wake of their activism, hedge funds have not only benefitted themselves, but their fellow bondholders as well. Alas, the remedy scheme for violations of bondholders rights – in particular, the centrality of the acceleration remedy – introduces its own set of imperfections. When treasury interest rates have increased or the stock price of a company that has issued convertible bonds has declined, acceleration generates a windfall: bondholders receive compensation in excess of the harm associated with the violation. In these cases, activists will spend excessive resources in detecting and pursuing potential claims and companies have excessive incentives to stave off potential violations. When treasury rates have declined, the tables are turned, and bondholder rights are underenforced. Whether this selective enforcement has generated aggregate benefits for bondholders and companies in the short term is unclear. Over the long term, however, the market will adjust to hedge fund activism by changing other terms in corporate bond indentures. In particular, we suggest that the contractual remedy scheme be revised by giving companies an expanded defeasance option and offering bondholders a make-whole premium upon acceleration, which would reduce, respectively, the incentives for overenforcement and underenforcement