Unexpected corporate outcomes from hedge fund activism in Japan

Simon Deakin,John Buchanan,Dominic H Chai

doi:10.1093/ser/mwy007

Simon Deakin, John Buchanan + Show 1 more

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https://doi.org/10.1093/ser/mwy007

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Journal: Socio-Economic Review	Publication Date: Feb 12, 2018
Citations: 14	License type: CC BY 4.0

Affiliation: University of Cambridge

Abstract

AbstractHedge fund activism has been identified in the USA as a driver of enduring corporate governance change and market perception. We investigate this claim in an empirical study to see whether activism produced similar results in Japan in four representative areas: management effectiveness, managerial decisions, labour management and market perception. Experience from the USA would predict positive changes at Japanese target companies in these four areas. However, analysis of financial data shows that no enduring changes were apparent in the first three areas, and that market perception was consistently unfavourable. Our findings demonstrate that the same pressures need not produce the same results in different markets. Moreover, while the effects of the global financial crisis should not be ignored, we conclude that the country-level differences in corporate governance identified in the varieties of capitalism literature are robust, at least in the short term.

Highlights

Hedge fund activism is essentially a search for investment returns through pressure on firms to change their corporate governance
We investigate this claim in an empirical study to see whether activism produced similar results in Japan in four representative areas: management effectiveness, managerial decisions, labour management and market perception
We turn to our research question: whether the tactic of activism refined in one national market produced similar results for corporate governance and market perception in another national market with similar corporate structures and legislation (Japan)

Summary

Introduction

Hedge fund activism is essentially a search for investment returns through pressure on firms to change their corporate governance. Seen by its critics as a form of ‘extortion’ (Lipton, 2013), hedge fund activism has found support from a series of empirical papers identifying positive impacts of interventions on the performance of target companies (Brav et al, 2008, 2015; Bebchuk et al, 2015; Becht et al, 2015). We investigate whether activist hedge fund interventions in Japan produced positive, enduring outcomes to interventions in the USA in terms of financial.

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