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Social Networks and Hedge Fund Activism
[The “Wall Street Walk” and shareholder activism: Exit as a form of voice]

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Listed:
  • Yazhou Ellen He
  • Tao Li

Abstract

We study the role of social networks in hedge fund activism. Actively managed funds whose managers are socially connected to activists are more likely than unconnected managers to invest in target stocks; their investment decisions are profitable. Importantly, such effects are greater for funds facing more severe information asymmetry. Connected funds are 14.2 percentage points more likely to support activists in proxy contests and contribute to reducing proxy contest costs. Our evidence shows that social ties benefit both connected investors and activists, and suggests that social networks reduce information asymmetry around activist campaigns by facilitating information exchange and increasing trust.

Suggested Citation

  • Yazhou Ellen He & Tao Li, 2022. "Social Networks and Hedge Fund Activism [The “Wall Street Walk” and shareholder activism: Exit as a form of voice]," Review of Finance, European Finance Association, vol. 26(5), pages 1267-1308.
    • Handle: RePEc:oup:revfin:v:26:y:2022:i:5:p:1267-1308.
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    References listed on IDEAS

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    1. Anat R. Admati & Paul Pfleiderer, 2009. "The "Wall Street Walk" and Shareholder Activism: Exit as a Form of Voice," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2445-2485, July.
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