Wednesday, December 11, 2013

The Legal Determinants of Shareholder Activism: A Theoretical and Empirical Comparative Analysis

Dr. Dionysia Katelouzou
Dickson Poon School of Law
King's College London


This study is an enquiry into the legal determinants of the brand of shareholder activism associated with activist hedge funds and other shareholder activist funds. The Article pioneers a new approach to understanding the underpinnings and the role of hedge fund activism using a sequential model of four stages. An activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry), accumulates a nontrivial stake (trading), then determines and employs its activist strategy (disciplining), and finally exits (exit). The article then identifies legal parameters for each activist stage and explains why the incidence, nature and evolution of activist campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries. The findings suggest that the extent to which legal parameters matter depends on the stage which hedge fund activism has reached. I find that mandatory disclosure and rights bestowed on shareholders by corporate law are likely to dictate how commonplace hedge fund activism will be in a particular country (entry stage). Moreover, the examination of the activist ownership stakes reveals that ownership disclosure rules have important ramifications for the trading stage of an activist campaign. At the disciplining stage, however, shareholder protection seems to have little explanatory power. The analytical framework and the new evidence presented in this study can be a foundation for future empirical and policy analysis.

You can find the article at: