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Does intensified communication of hedge funds with letters affect abnormal returns?

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  • Oehler, Andreas
  • Schmitz, Jonas Tobias

Abstract

Hedge funds go beyond their statements on the transaction purpose in Schedule 13D by stating their activism objectives in a letter to the corporate management. Anyhow, prior work does not examine the impact of the communication channel systematically. The content of the letters aims at enabling corporate management to understand the activism goals better. Therefore, the communication channel might reduce the perceived uncertainty regarding the expected activism value. Hence, we presume higher abnormal returns compared to events with no letter. Our results reveal that activism is related to positive reactions, but intensified communication per se is not the reason.

Suggested Citation

  • Oehler, Andreas & Schmitz, Jonas Tobias, 2021. "Does intensified communication of hedge funds with letters affect abnormal returns?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 127-142.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:127-142
    DOI: 10.1016/j.iref.2021.05.004
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    More about this item

    Keywords

    Hedge fund activism; Tactical communication; Uncertainty;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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