Essays on Hedge Fund Activism and Family Firm




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This dissertation has two essays covering hedge fund activism and family firm. In the first essay of my dissertation, I investigate how hedge fund activism reengineer corporate culture of targeted firms. By using culture measures based on the Q&A section of earnings conference calls, I find that target firms emphasize building organizational culture with better quality, more innovation, higher integrity, and growing respect after activism. However, teamwork culture does not change. I also find that these positive effects of activism on corporate culture are mainly driven by CEO turnover, especially if incumbent CEOs are replaced by outsiders, not insiders. New outside CEOs are recruited from firms with better culture and higher asset sales. Activist-appointed directors also influence corporate culture by promoting outside CEO turnover. Target firms with positive cultural change improve their firm performance. Additionally, employees of target firms perceive their firms’ culture as improved after activism. Overall, this study provides evidence of the importance of corporate culture as a source of gains from hedge fund activism. The second essay examines the extent to which founder-CEOs pay attention to stock market signals in making their investment decisions. We find that founder-CEOs, on average, place significantly less weight on market signals than professional CEOs, without compromising investment efficiency and firm performance. We employ decimalization as an exogenous shock to show that the market premium due to enhanced liquidity is lower for founder-CEO firms, consistent with founder-CEOs underweighting the incremental information provided by a more liquid market. Further, we find that the weaker learning behavior is more prominent if founder-CEOs possess more specialized skills and operate firms with higher R&D intensity and greater operating cash flow volatility. We argue that founder-CEOs’ superior skills and longer-term investment horizons drive this result. Price informativeness, CEO power, external monitoring, financing constraints, and overconfidence do not seem to drive our findings.



Economics, Finance