The Threat of Hedge Fund Activism Disciplines Managers and Benefits Shareholders. But What Happens to Creditors?

Hedge fund activism is the latest rave in corporate governance. Activist hedge funds build stakes in target firms in order to press management for various changes. When managers are uncooperative, they may just be forced to step down. Lest you think only managers of small, not well-established firms have reason to fear, some of the most powerful managers in corporate America, for example the CEOs of Bob Evans, Hertz, Sotheby’s, Yahoo, etc., have all failed to avoid such fate. It appears that no firm is immune to the threat of HFA.

Managers, needless to say, have great incentive to avoid … Read more