Abstract
This paper provides the first evidence to hedge fund and private investor activism in Hong Kong. The absence of mandatory active ownership disclosure regime, like the U.S. Schedule 13D, creates two major challenges for researchers in many places – no active/passive classification, and no objectives of activism. We take a novel approach to mitigate these two challenges. First, we restrict our data to three well-known activists – U.S. hedge fund Elliott Associates, U.K hedge fund The Children’s Investment Fund and a local investor David Webb. Second, we record activism outcomes from target firm announcements pursuant to relevant local rules. We construct a hand-collected sample of 42 events from April 2003-September 2015. We find a robust short-run value creation effect around ownership disclosure. Activism earned mean cumulative-abnormal-returns of 9.9% in the [-20, 20] event window. In longer-run, we find no evidence for a generally valid value creation effect. The local market return adjusted buy-and-hold-abnormal-returns (BHARs) reversed within the first 6 months of activism and did not statistically different from zero afterwards. Interestingly, we find activism earned around 20% local cash return adjusted-BHARs in 1-year, and no reversion in 2-year. The activists are good at market-timing. Success rate of achieving activism outcomes is lower than the U.S. and international evidence. Target firms with takeover outcomes are associated with substantially high abnormal returns. The short-run market reaction carries important informational content on future outcomes. The market rightly anticipated those events with activism outcomes, and those events generated sizable abnormal returns in the subsequent year. Unconditional to activism outcomes, target firms with low dividend yield are associated with higher short-run returns. Finally, we adopted the recent advance in asset-pricing of using up-to-date price to form book-to-market equity ratio (B/M). We find high up-to-date B/M, small size, low ROA, low leverage and low betas are associated with high long-run returns to activism.
Published Version
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