Activist hedge funds and ESG: Seeking out the good, the bad or the ugly? Evidence from the activist hedge fund campaigns in the United States

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Journal Title

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Volume Title

School of Business | Master's thesis

Authors

Date

2023

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

65 + 3

Series

Abstract

This study aims to add to the ongoing debate on whether activist hedge funds seek short-term shareholder gains at the cost of long-term stakeholders by examining the link between activist hedge funds and a firm’s corporate social performance. Using a hand-collected sample of 145 activism events during the period of 2016-2020, I examine the association between the firm’s ex-ante ESG performance and the likelihood of becoming targeted by an activist hedge fund. Moreover, I examine whether hedge fund activism affects the target firms’ subsequent corporate social performance. I document positive but statistically insignificant results on the firm ESG performance and the likelihood of becoming targeted by an activist hedge fund. For the second research question, I do not document significant changes in the target firms’ ESG performance for one and two years after the intervention. The inconclusive results are in contrast to the prior literature documenting that higher CSR firms are more likely to be targeted and the target firms’ CSR activities deteriorate after the activist campaign. The study has three significant contributions to the existing literature. First, the thesis provides the most recent evidence on the relationship between hedge fund activism and corporate social performance. Furthermore, by breaking down the ESG performance into E and S, the thesis provides a more granular overview of the relationship. Second, the study demonstrates how the assumption of homogeneity in empirical studies on shareholder activism may result in insignificant results and confounding interpretations. Last, the inconclusive findings of this paper raise an important question on the potential bias of using specific data sources for ESG performance in the studies on corporate social performance.

Description

Thesis advisor

Nyberg, Peter

Keywords

hedge fund activism, corporate social performance, ESG, agency theory, market for corporate influence

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202401211662

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[gradu] Kauppakorkeakoulu / BIZ