Private Equity Activism and the Consequences for Targets and Rivals in Germany

Wirtschaftswissenschaften

Mietzner, Mark, Schweizer, Denis

Private Equity Activism and the Consequences for Targets and Rivals in Germany In: Douglas Cumming, editors. The Oxford Handbook of Private Equity

Mietzner, Mark, Schweizer, Denis: Private Equity Activism and the Consequences for Targets and Rivals in Germany, in: Douglas Cumming (Hrsg.): The Oxford Handbook of Private Equity, Oxford, Oxford University Press, 2012: 495-520.

Buchbeiträge

Recently, a number of studies analyzed the role of institutional investors and proposed that large blockholders can increase shareholder value through active monitoring [e.g., Cronqvist and Fahlenbrach (2009)]. However, empirical evidence for successful shareholder activism is mixed and economists suggest that not all investors are equally equipped and motivated to become active. This chapter deepens the understanding of institutional ownership by analyzing market reactions triggered by announcements that private equity managers purchase large blocks (>5%) of voting rights. While focusing on the type of institutional investors is important in general important, we argue that corporate governance system of the target firm’s nation has also to be considered in detail. Therefore, our investigation focuses on the German market which can be characterized by a high level of ownership concentration and a more bank-oriented (stakeholder orientated) financial system. We compare and contrast our findings with the results of recent papers analyzing hedge fund activism in other financial markets like the US market (see, for instance, Brav et al. 2008 and Klein and Zur 2009). Based on a rich and detailed dataset of German publicly listed companies, we relate the target firms’ short-term stock performance to several corporate characteristics and market variables. The engagement of a private equity fund may reveal private information about future industry cash flows on the one side. On the other side the market may perceive that the agency problem is industry wide and that the engagement will induce industry rival firm managers to improve performance to avoid becoming the next target. These features prove to be important for the existence of potential intra-industry effects as we expect that industry rivals to target companies might be positively affected. Therefore, we analyze the short-term capital market reactions to the announcement that a publicly listed company is targeted by a private equity fund as well as the related effects for industry rivals.

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