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Abstract
This dissertation adds to the literature on hedge funds as shareholder activists in publicly held corporations. The first chapter tracks how activism by shareholders has evolved since the formation of first publicly held corporations. Over the centuries, the principal-agent conflict has been an inherent phenomenon of the corporation, and the nature of ensuing shareholder interventions to monitor the agent bears striking resemblance. Since the mid 2000’s, hedge funds have become key players on the shareholder activism arena. The second chapter reviews extant literature on role of hedge funds as shareholder activists. The third chapter explores if certain hedge funds are more skilled at activism than others. I use a “Markov Chain Monte Carlo'' Bayesian estimation algorithm to isolate a time-invariant activist-specific skill effect from cumulative abnormal returns. I find considerable differences in long-term persistence of up to 13-20% between top and bottom skill quintile of hedge fund activists. Out-of-sample tests confirm that the skill estimates are informative about future performance. Differences in skill are also evident in hedge fund activists’ campaign characteristics. The most skilled activists are associated with higher target firm takeover premiums and are more versatile in their use of different tactics to achieve campaign objectives. The fourth chapter studies temporal trends in the incidence of hedge fund activism campaigns. I document significant temporal clustering in hedge fund activism campaigns across sectors. On average two-third of the campaigns are initiated in one-third of the years from 2001-2018. These sector-level waves of hedge fund activism develop during periods of high takeover activity in a sector. There are significant shareholder wealth effects to timing these activism waves, with campaigns initiated at beginning of a wave earning higher abnormal return around their announcement, which persists for a year after announcement. The higher value added to target firms at beginning of a wave, is attributable to higher merger completion rates, more flexibility and success in use of dissident tactics by activists in their engagement with target firms, presence of higher fraction of activism-friendly institutional ownership in target firms, and lower likelihood that these campaigns are initiated by unskilled activists.