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Do Corporate Governance Motives Drive Hedge Fund and Private Equity Fund Activities?
Author(s) -
Achleitner AnnKristin,
Betzer André,
Gider Jasmin
Publication year - 2010
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2010.00557.x
Subject(s) - hedge fund , business , corporate governance , dividend , leverage (statistics) , private equity , shareholder , finance , equity (law) , private equity fund , free cash flow , fund administration , cash flow , monetary economics , fund of funds , economics , market liquidity , machine learning , computer science , political science , law
We document empirical evidence that both hedge fund (HF) and private equity fund (PE) investments are driven by corporate governance improvements, but address different types of agency conflicts. Whereas HFs focus on firms without a controlling shareholder, in particular family shareholders, PEs invest in firms with low managerial ownership. Both appear to address free cash flow problems differently. Aiming at increasing dividends, HFs tend to use commitment devices that can be implemented over a short horizon. PEs are inclined to longer‐term strategies: they target firms that are particularly well suited for leverage increases because of low expected financial distress costs .