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Heng An's Lecture Notice

Publish Date: 2018/10/08 10:40:46    Hits:

Time:10.12 12:00-14:00

Location:A1039

Title:The Impact of Hedge Fund Activism on Corporate Cost Behavior

Presenter: Heng An

Abstract:

We examine the impact of hedge fund activism on target firms’ selling, general and administrative (SG&A) costs. After the hedge fund intervention, the SG&A to sales ratio goes down, a sign of improved operating efficiency. Before the intervention, target firms exhibit greater level of cost stickiness which means SG&A costs fall less for sales decreases than they rise for equivalent sales increases, a symptom of agency problems according to Chen, Lu, and Sougiannis (2012). However, hedge fund intervention significantly reduces the degree of cost stickiness, and the reduction is more pronounced in firms with severe agency problems. Moreover, activist hedge funds concentrate their intervention efforts on firms whose SG&A expenditures create low firm values. Finally, a tactic employed by hedge funds to change corporate cost behavior is to replace senior corporate executives. Taken as a whole, the findings suggest hedge fund activism improves the efficiency of resource adjustments by mitigating agency problems at the target firms.

Introduction

Heng An is an Associate Professor of Finance and Kathleen Price Bryan Dean's Notable Scholar at the University of North Carolina Greensboro. His research areas include corporate finance, institutional investors, and real estate finance. He has published extensively at top finance, accounting, and real estate journals, includingJournal of Corporate Finance, Journal of Banking and Finance, Review of Accounting Studies, Real Estate Economics,andJournal of Real Estate Finance and Economics.