The Efficacy of Activist Directors

Many prominent business executives and legal scholars are convinced that the American economy will suffer unless hedge fund activism with its perceived “short-termism” agenda is significantly restricted. Conversely, shareholder activists and their proponents claim they function as a “disciplinary mechanism” to provide management oversight and are instrumental in mitigating the potential agency conflict between managers and shareholders.

Earlier studies have shown that when institutional investors, particularly mutual funds and pension funds, follow an activist agenda, they do not achieve significant benefits for shareholders. Nevertheless, hedge funds have increasingly engaged in shareholder activism and management supervision that differs fundamentally from previous … Read more