Hedge fund activism and corporate life stage: case studies of high-technology companies

Abstract

Hedge fund actvism is hedge funds trying to change how companies are managed. The main advantage and disadvantage of hedge fund activism have been identified as reduction of agency costs and myopia. But one fatal problem with existing literature on hedge fund activism is that they have not realized that the same activism tactic can have different effect on companies with different characteristics. This paper seeks to fill this gap by examing one of these firm-specific factors, corproate life stage. It conducts case studies on activism campaigns at Apple, eBay and HP. It shows that companies at later life stages are less vulnerable to myopic hedge fund activism, have more corporate governance concerns and are more likely to benefit from hedge fund activism. Thus the law should be reformed to encourage activism tailored to specific circumstances of target companies.