“Wolves at the Door: A Closer Look at Hedge Fund Activism” by Mr. WONG, Yu Ting Forester
Mr. WONG, Yu Ting Forester
Ph.D. Candidate in Accounting
Some commentators attribute the success of hedge fund activism to the support offered by other investors who accumulate stakes in target firms before the public disclosure of activist campaigns (i.e., the filings of form 13D). This phenomenon is commonly referred to as the ―wolf pack‖ tactic. I find evidence consistent with the existence of and frequent usage of wolf packs. Investors, besides the lead activist, accumulate a significant amount of shares before the 13D filing, with most of the accumulation happening when the activist crosses the 5% threshold, an event not publicly observable. My evidence is consistent with wolf packs being mustered by the lead activist, rather than spontaneously forming. Share accumulation by the other investors does not appear to be driven by changes in market conditions such as public news arrival, momentum trading, or changing liquidity. Rather these investors are likely to have a prior relationship with the lead activist. The presence of wolf packs is also associated with greater campaign success in terms of activists achieving their stated objectives (e.g., obtaining board seats).