Hedgefonds in Deutschland und die Auswirkungen auf Corporate Governance im Sinne des Deutschen Corporate Governance Kodex

This thesis investigates what implications hedge funds have on the corporate governance in accordance with the German Corporate Governance Code (GCGC) of listed companies in Germany. By using an extensive hand-collected data set of more than 200 potential target companies across the four major German stock indices, this study identified 28 companies that have been targeted by over 20 hedge fund activists from 2010 to 2017.
Analysis of the data shows that hedge funds prefer to target companies with a high free float and positive historical stock performance. Further evidence has been identified as key characteristics of target companies: First, most target companies relate to the industrial sector. Second, hedge funds target large-cap companies more often than small-caps. Third, hedge funds prefer companies with a high level of compliance with the GCGC, which is generally around 95% for large-caps, but decreases for small-caps. However, statistical results find no evidence that hedge fund interventions reduce agency problems. Furthermore, the survey results state that hedge fund activism is not regarded unethical among experts.
The findings have significant implications for investors as well as managers.
Investors should not take hedge fund activism as a guarantee for positive returns, although results have shown that their investments in blue chip companies returned in above-average performance. Interventions at the corporate governance level have been most successful when hedge funds supported their own or external management or supervisory candidates.
Managers must realize that every company, regardless of their size and industry focus, may be targeted by hedge fund activists. Moreover, corporate governance interventions are typically linked to portfolio measures leading to potential fundamental changes in the company’s structure.
Managers should therefore take the advice to engage early with investors and recognize that hedge fund campaigns are designed for several years.
In conclusion, this thesis provides new evidence on the effects active hedge funds have on corporate governance although the GCGC in general and the declaration more specifically have not yet proven to be materially relevant to valuation. Nevertheless, nine out of ten surveyed experts are convinced that hedge fund activism has a positive impact on corporate governance.