Dionysia Katelouzou

Trinity Hall

Is Corporate Law a Catalyst for Hedge Fund Activism? A Cross-Border Empirical Analysis

Shareholder activism, particularly of the sort hedge funds engage in, is more topical than it has ever been. In the wake of the financial crisis, the role of shareholders in corporate governance has become one of the hot-button issues and activist hedge funds, which first appeared in the shareholder activism arena in early 2000, hold a great promise to be the long sought-after shareholder champion who can dislodge ill-advised management. But, while much has been written about the nature of hedge fund activism, little is known on whether cross-border hedge fund activism is affected by the jurisdiction of the target company. The thesis attempts to fill this gap adopting a novel perspective, which combines theoretical and comparative legal analysis with empirical methods (quantitative and qualitative). The application here is new, but the idea that law is essential to corporate governance arrangements echoes the ‘law matters’ thesis advanced by recent studies on comparative law and finance. The thesis starts with identifying the key characteristics of hedge fund activism, doing so by introducing shareholder activism, hedge-fund-style as a sequence of three stages: entry (finding and funding), building a stake, managing (in the sense of initiating value-enhancing changes). Legal variables influencing each hedge fund activism stage are then identified. The empirical core of the study comprises a hand-collected dataset from press-reports which contains 340 activist events sponsored by 123 unique hedge funds across 25 countries between January 1, 2000 and August 31, 2010. The thesis also draws on recently developed indices that quantitatively analyse certain aspects of countries’ corporate laws that I believe to be meaningful for activist hedge funds to bring about the desired changes. Combining quantitatively legal data with the hand-collected dataset, I find that cross-border differences in disclosure rules are reflected in the stakes activist hedge funds actually build and that strong shareholder protection rules foster hedge fund activism. On other hand, I find that continuous disclosure and insider trading rules matter less for activist hedge funds seeking to uncover underperforming companies. Finally, I put forward case studies, or ‘institutional autopsies’, which shed light on the interaction between legal rules and hedge fund activism from a different angle.

Start Date: 2008/09.

End Date: 2011/09.

LL.B. (Athens), LL.M. (Cantab.), Ph.D. Candidate (Cantab.)

Corporate Governance

Corporate Law

Law and Economics

Empirical Legal Studies 

Prof. Brian R. Cheffins