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Activist hedge funds and firm disclosure

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  • Chen, Jing
  • Jung, Michael J.

Abstract

This study examines whether firms' disclosure decisions are affected by the presence of activist hedge funds. Using a large sample of firms that experienced increases in ownership by activist hedge funds, we find that firms are more likely to cease providing financial guidance or reduce the information in the guidance in the quarter subsequent to new investment by activist hedge funds. These results hold even for firms that experienced good quarters and consistently provided guidance in previous quarters. Since guidance has been shown to be beneficial to capital market participants in many ways, reduced guidance has meaningful market implications. Our findings highlight a negative and possible unintended consequence of activist hedge funds' investment in firms, which provides some counterbalance to the numerous positive consequences documented in the prior literature on hedge fund activism.

Suggested Citation

  • Chen, Jing & Jung, Michael J., 2016. "Activist hedge funds and firm disclosure," Review of Financial Economics, Elsevier, vol. 29(C), pages 52-63.
    • Handle: RePEc:eee:revfin:v:29:y:2016:i:c:p:52-63
    DOI: 10.1016/j.rfe.2015.09.004
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    3. Flugum, Ryan & Howe, John S., 2020. "Hedge fund activism and analyst uncertainty," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 206-227.
    4. Thomas Bourveau & Jordan Schoenfeld, 2017. "Shareholder activism and voluntary disclosure," Review of Accounting Studies, Springer, vol. 22(3), pages 1307-1339, September.

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    More about this item

    Keywords

    Activist hedge funds; Shareholder activism; Management guidance; Disclosure;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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