Activist Hedge Fund Board Representation and its Impact on Corporate Strategy
- Ahn, Albert Minkyu
- Advisor(s): Wiersema, Margarethe
My research falls within the realm of corporate governance and strategic leadership. I examine the role of external capital constituents, in particular activist hedge funds, and their influence on the strategic decision making of boards, senior executives and the eventual outcome of their campaigns. Deploying more than $42 billion in capital globally and with more than 800 campaigns in 2019, activist hedge funds are rattling the leaders of the corporate world and represent the “new sheriffs of the boardroom”. My dissertation investigates hedge fund activism and its consequences for corporate governance and strategy. The first chapter is a conceptual paper based on interviews with the principals of activist hedge funds and directors of public companies that were targeted by activists. The purpose of the paper is to motivate scholars to advance our understanding of hedge fund activists, their influence on executive decision making, and the implications for corporate strategy and governance. The second and third chapters are empirical investigations on the impact of activist board representation on corporate strategy and corporate governance. One of the main demands by activists and one of the ways for target firms to placate activists is by granting board representation. My research examines what happens when activists through board representation become an internal mechanism of governance. I employ propensity score matching to construct a pooled cross-sectional sample. In chapter #2, I have a matched sample of 306 target firms (153 target firms with activist director representation and 153 target firms without activist director representation) over the period 2009 to 2014. I propose and find that among firms targeted by activists, those in which an activist gets board representation have significantly more changes in their business portfolio than firms without activist board representation. In chapter #3, I have a matched sample of 166 target firms (83 firms with activist director representation and 83 firms without activist director representation over the 2013-2014 period. I propose and find that among firms targeted by activists, those in which an activist gets board representation have significantly more changes in their corporate governance than firms without activist board representation. Collectively, my research contributes to the corporate governance and strategy literature by providing insight into the role of activists in influencing board and executive decision making and firm outcomes.