Social Networks and Hedge Fund Activism
Review of Finance, forthcoming
52 Pages Posted: 15 Jun 2016 Last revised: 11 Apr 2022
Date Written: April 1, 2018
We study the role of social networks in hedge fund activism. Actively managed funds whose managers are socially connected to activists are more likely than unconnected managers to invest in target stocks; their investment decisions are profitable. Importantly, such effects are greater for funds facing more severe information asymmetry. Connected funds are 14.2 percentage points more likely to support activists in proxy contests and contribute to reducing proxy contest costs. Our evidence shows that social ties benefit both connected investors and activists, and suggests that social networks reduce information asymmetry around activist campaigns by facilitating information exchange and increasing trust.
Keywords: Hedge fund activism, Information asymmetry, Social networks, Governance
JEL Classification: G23, G34
Suggested Citation: Suggested Citation