This paper studies the long-term effect of hedge fund activism on firm productivity using plant-level information from the U.S. Census Bureau. A typical target firm improves production efficiency in the 3 years after intervention, with stronger improvements in business strategy-oriented interventions. Plants sold after intervention improve productivity significantly under new ownership, suggesting that capital redeployment is an important channel for value creation. Employees of target firms experience stagnation in work hours and wages despite an increase in labor productivity. Additional tests refute alternative explanations attributing the improvement to mean reversion, management's voluntary reforms, industry consolidation shocks, or activists' stock-picking abilities.

This study examines the voting behavior of independent directors of public companies in China from 2004–2012. The unique data at the individual-director level overcome endogeneity in both board formation and proposal selection by allowing analysis based on within-board proposal variation. Career-conscious directors, measured by age and the director's reputation value, are more likely to dissent; dissension is eventually rewarded in the marketplace in the form of more outside directorships and a lower risk of regulatory sanctions. Director dissension improves corporate governance and market transparency primarily through the responses of stakeholders (shareholders, creditors, and regulators), to whom dissension disseminates information.

This article provides a comprehensive analysis of a new and increasingly important phenomenon: the simultaneous holding of both equity and debt claims of the same company by non-commercial banking institutions ("dual holders"). The presence of dual holders offers a unique opportunity to assess the existence and magnitude of shareholder-creditor conflicts. We find that syndicated loans with dual holder participation have loan yield spreads that are 18--32 bps lower than those without. The difference remains economically significant after controlling for the selection effect. Further investigation of dual holders' investment horizons and changes in borrowers' credit quality lends support to the hypothesis that incentive alignment between shareholders and creditors plays an important role in lowering loan yield spreads. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

This study examines the impact of auditor specialization on bank loan loss provisions for a large cross-section of US banks for the period 2002–2006. We find a positive relationship between earning (before provision) and loan loss provision, suggesting that bank managers use LLP to smooth earnings in the post-SOX period. However, this relationship is significantly moderated by audit industry expertise, providing strong evidence that industry specialization constrains income smoothing. In further analysis, we find some evidence that auditor specialization is more effective in reducing potentially incoming-increasing earnings management. Our results hold after controlling for self-selection bias and are robust to alternative measures of industry specialization. Overall, our findings support the conclusion that audit industry expertise plays an effective monitoring role in constraining management’s discretionary accounting choices.

Bayesian learning implies decreasing weights on prior beliefs and increasing weights on the accuracy of the analyst's past forecast record, as the number of forecast errors comprising her forecast record (its length) increases. Consistent with this model of investor learning, empirical tests show that investors’ reactions to forecast news are increasing in the product of the accuracy and length of analysts’ forecast records. Moreover, the Bayesian learning predicted by our model is more descriptive of investor reactions than is a static model which predicts that investors’ responses condition only on the prior accuracy of the analyst.

FinTech is about the introduction of new technologies into the financial sector, and it is now revolutionizing the financial industry. In 2017, when the academic finance community was not actively researching FinTech, the editorial team of the Review of Financial Studies launched a competition to develop research proposals focused on this topic. This special issue is the result. In this introductory article, we describe the recent FinTech phenomenon and the novel editorial protocol employed for this special issue following the Registered Reports format. We discuss what we learned from the submitted proposals about the field of FinTech and which ones we selected to be completed and ultimately come out in this special issue. We also provide several observations to help guide future research in the emerging area of FinTech.

Using a large hand‐collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two‐thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.

This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the 1992 proxy reform which reduced the costs of communication among shareholders. Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund. Our study contributes to the understanding of the actions undertaken by arbitrageurs in financial markets beyond just pure trading.

We present the first comprehensive study of mutual fund voting in proxy contests. Among contests where voting takes place, passive funds are 10 percentage points less likely than active funds to vote for dissidents. The gap shrinks significantly when accounting for votes withheld from management nominees, settled contests, and votes by non-“Big-Three” fund families. Passive and active funds are equally informed about firm fundamentals, although passive funds view contest-related SEC filings more often than active funds during contests, in absolute levels and incrementally relative to noncontest periods. We conclude that passive funds are engaged shareholders in high-stakes voting events.

The paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets. Analyzing mutual fund data, we find that, consistent with a theoretical model, funds with illiquid assets (where complementarities are stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets. We also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors. We present further evidence that these results are not attributable to alternative explanations based on the informativeness of past performance or on clientele effects. We analyze the implications for funds’ performance and policies.