The Behavioral Perspective of Hedge Fund Activism
- Koo, Haeyoung
- Advisor(s): Wiersema, Margarethe
My dissertation explores the behavioral aspect of firms’ decision-making processes in the context of hedge fund activism. The first paper investigates how behavior of activist hedge funds influence target firm responses. Drawing on psychological reactance theory, I find that the use of more hostile tactics by activist hedge funds increases target firm resistance by eliciting greater reactance from the firm’s leadership. The second paper explores the effect of hedge fund activism on managerial attention. Through a content analysis of earnings transcripts of Fortune 500 companies using a difference-in-difference design, I find that the attention of the CEO to shareholder value increases after the firm is targeted by an activist hedge fund. The third paper explores the spillover effect of hedge fund activism in an industry on non-targeted peer firms. I examine how an activist campaign at a target firm influences the CEO communication of a peer firm in the same industry through a topic modeling analysis of 23,184 earnings transcripts of Fortune 500 firms from 2003 to 2017. My findings show that the CEOs of peer firms increase their discussion of topics related to shareholder value and strategy and decrease their discussion related to quarterly earnings results, following an activist campaign in the industry.