TY - UNPB
T1 - Caught in the Crossfire: How the Threat of Hedge Fund Activism Affects Creditors
AU - Feng, Zhiyu
AU - Xu, Qiping
AU - Zhu, Caroline
PY - 2016/1/18
Y1 - 2016/1/18
N2 - Firms under the threat of hedge fund activism on average experience significant losses of outstanding bondholder wealth: bond yield and default probability rise while price drops and ratings deteriorate. They receive inferior terms when initiating new loans. The observed patterns are more prominent in firms with weak creditor rights protection, high leverage, and significant improvement in stock performance without accompanying real improvements. These findings are consistent with the manifestation of agency conflicts. Share repurchases funded by cash, asset sales, and new debt issuance elevate share price, increasing the cost of intervention for activists but jeopardizing the interest of existing bondholders.
AB - Firms under the threat of hedge fund activism on average experience significant losses of outstanding bondholder wealth: bond yield and default probability rise while price drops and ratings deteriorate. They receive inferior terms when initiating new loans. The observed patterns are more prominent in firms with weak creditor rights protection, high leverage, and significant improvement in stock performance without accompanying real improvements. These findings are consistent with the manifestation of agency conflicts. Share repurchases funded by cash, asset sales, and new debt issuance elevate share price, increasing the cost of intervention for activists but jeopardizing the interest of existing bondholders.
KW - Hedge fund activism
KW - corporate governance
KW - shareholder-bondholder conflict
U2 - 10.2139/ssrn.2716929
DO - 10.2139/ssrn.2716929
M3 - Working paper
BT - Caught in the Crossfire: How the Threat of Hedge Fund Activism Affects Creditors
ER -