Hedge Funds Have Perfect Score In Booting CEOs

Hedge funds appear to always get their man or woman when they put their mind to replacing a company’s top honcho, according to a new study by a New York University professor.

Hedge funds appear to always get their man or woman when they put their mind to replacing a company’s top honcho, according to a new study by a New York University professor. In studying more than 150 Securities and Exchange Commission Schedule 13D filings, NYU Stern Associate Professor of Accounting April Klein found that hedge funds had a 100% success rate in replacing a CEO, though somewhat less successful in getting seats on a board (73%) and about half as capable (56%) of preventing a merger. The percentages are based on objectives stated in the companies initial 13D flings. The study also found that hedge funds were able to use the threat of proxy solicitation 39% of the time to achieve their goals. In other findings, the study reveals that hedge funds are more likely to target profitable, cash-rich, healthy firms, in contrast to other activist investors that set their sights on poorly performing firms. The bottom line, however, is that HF activism, fails to improve accounting performances on the targeted companies, as evidence by a drop in earnings per share, return on assets and return on equity in the year after the 13D was filed, according to the Klein study.