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Activist hedge funds and firm disclosure
Author(s) -
Chen Jing,
Jung Michael J.
Publication year - 2016
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2015.09.004
Subject(s) - hedge fund , alternative beta , hedge accounting , business , fund of funds , open end fund , quarter (canadian coin) , global assets under management , investment (military) , alternative investment , monetary economics , capital market , finance , institutional investor , economics , financial system , corporate governance , market liquidity , archaeology , politics , political science , law , history
This study examines whether firms' disclosure decisions are affected by the presence of activist hedge funds. Using a large sample of firms that experienced increases in ownership by activist hedge funds, we find that firms are more likely to cease providing financial guidance or reduce the information in the guidance in the quarter subsequent to new investment by activist hedge funds. These results hold even for firms that experienced good quarters and consistently provided guidance in previous quarters. Since guidance has been shown to be beneficial to capital market participants in many ways, reduced guidance has meaningful market implications. Our findings highlight a negative and possible unintended consequence of activist hedge funds' investment in firms, which provides some counterbalance to the numerous positive consequences documented in the prior literature on hedge fund activism.