The short-term effects of hedge fund Investment and activism on shareholder value

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Bachelor Thesis

The Short-term Effects of Hedge Fund

Investment and Activism on Shareholder Value

Date: 29-06-2015

Author: Rebecca Rosegg Student number: 10322329 Universiteit van Amsterdam

Bachelor Economics and Business, track Finance and Organisation Supervisor: Dr. J.E. Ligterink

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Statement of Originality

This document is written by Student Rebecca Rosegg who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

Prior research based on events in the United States found that hedge fund investment and activism affect shareholder value in the short run in a positive way. There has not been done much research on the same topic in the Netherlands, even though the results might differ from the findings in the United States. This thesis examines the effect of hedge fund investment and activism in the Netherlands from 2007 to mid-2015 on shareholder returns. This thesis finds significant positive returns surrounding the announcement of both investment and activism by hedge funds. Hedge funds that invest in Dutch companies mainly invest in the financial, industrial and technology industries. Companies in these industries have the largest abnormal returns surrounding the announcement date of all the industries in my sample. This thesis also looks into the objectives of hedge fund activism and the related abnormal returns. When hedge fund activism occurs in the Netherlands, the most common objectives are changes in business strategy and governance. The sample used in this thesis is quite small, consisting of 73 hedge fund filings and 19 activism events. As such, the conclusions drawn in this thesis cannot be used as solid proof. However, I think the results of this research point towards a positive relation between hedge fund investment and activism and the returns of the target company.

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1. Introduction

A hedge fund is an investment vehicle that pools capital from a number of investors and invests in securities and other instruments. Unlike mutual funds, hedge funds can use leverage or derivative instruments, are not required to maintain high levels of diversification, nor are they subject to the same liquidity constraints of mutual funds (Clifford, 2008). Various hedge funds exhibit shareholder activism: The fund assumes large equity positions in a company and uses this ownership to influence the company through, e.g., making demands to the board or appeals to other shareholders. Activist hedge funds can have various objectives, including payout policy and capital structure changes, executive compensation cuts, attempting to play an activist role in a pending merger or acquisition, and business strategy changes like tax efficiency-enhancing proposals and divestment of some divisions (Brav et al., 2008). These actions can influence the shareholder value of a company over different periods. For example, the issuing of special dividends or the liquidation of assets results in a short-term payoff, while capital structure and board and management changes may influence the value over the long-term.

Hedge fund activism is a much debated subject. Critics argue that hedge funds only aim at short-term returns by overleveraging and ignoring the adverse effects on long-term shareholders, employees and the future of the company (Lipton, Lewis & Lipton, 2015). However, various empirical papers find positive market reactions to hedge funds’ investment in a target firm, with no evidence of a negative abnormal drift during the 1-year period subsequent to the announcement (Brav et al., 2008), (Klein and Zur, 2009). This increase in shareholder value does not necessarily mean that hedge fund activism creates more wealth. While advocates of hedge fund activism claim that the increase in shareholder value results from greater efficiency in managing the company, there is also evidence that hedge fund activism reduces bondholder wealth, suggesting a transfer of wealth from bondholders to shareholders (Klein and Zur, 2011).

Most of the research on hedge fund activism has been done in the United States, where Schedule 13D1 filings require the reporting entity to state the purpose of the acquisition of securities. The Netherlands have a similar regulation, where each person or legal entity that acquires more than 3% of the issued capital of an issuing institution has to report this to the AFM (Autoriteit Financiële Markten). This regulation differs from the Schedule 13D filings in that, in the Netherlands, the filer does not have to mention the purpose of the acquisition of securities. This may affect the reaction of the market on the acquisition since it is not clear what actions the hedge fund will take, or even if it will exhibit a form of activism.

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Schedule 13D is a filing that must be submitted to the US Securities and Exchange Commission by anyone who acquires beneficial ownership of 5% or more of traded securities in a public company. Studies on hedge fund activism use 13D filings to gather their data.

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6 This thesis will focus on the effect of hedge fund filings and activism on short-term shareholder value in the Netherlands and whether this effect differs from the United States. The research question of this thesis is:

‘How does hedge fund investment and activism in the Netherlands affect the short-term returns of targeted companies?’

To answer this question, three empirical analyses, in the form of two event studies and a regression, will be done. The first event study will focus on the returns of companies targeted by hedge funds. Abnormal returns will be calculated over the 30 day period surrounding the day that a hedge fund has reported its substantial interest in a company for the first time. The abnormal returns found in this event study will be used in a regression. The outcome of this regression will be used to determine whether the period of the filing, the target’s industry, and the fact that a hedge fund is an activist fund have an impact on the abnormal returns surrounding the filing date. The second event study will analyse the announcement effect of shareholder activism by hedge funds on the returns of the targeted companies.

All analyses will focus on the period 01/01/2007 – 01/06/2015. The market model will be used to find the estimated returns for the targeted companies. With the estimated returns the abnormal returns for each of the targeted companies will be calculated and finally the cumulative average abnormal return.

Various papers exist that look into the effects of hedge fund activism. Most of those papers focus on the US. Due to differences in regulation, the effects of hedge fund investment in the Netherlands may differ from those in the United States. To my knowledge, there is only one paper (de Jong et al., 2007) that focuses on hedge fund activism in the Netherlands. However, that paper mostly focuses on the mode of operation of hedge funds and does not analyse the effect of hedge funds on shareholder returns. Another paper, by Becht et al. (2010), researches the effects of hedge fund activism in Europe. This paper studies 21 cases of hedge fund investment in the Netherlands.

This thesis contributes to the existing literature because little research is done on the effects of hedge fund activism on shareholder returns in the Netherlands, and the results may differ from those in the US because of differences in regulation. Existing research that investigates the short term returns of hedge fund filings only includes a small number of cases of hedge fund investment in the Netherlands (Becht et al., 2010). Most papers on hedge fund activism in the US research the short term returns around hedge fund filings. These returns already include the effect of hedge fund activism because hedge funds are required to state their objectives when filing their Schedule 13D. Since this is not the case in the Netherlands, the market becomes aware of the hedge fund’s intent with the target company at another time. This thesis will also examine the returns around the announcement of hedge fund activism in the Netherlands. Another contribution made by this thesis to the existing literature is the regression which seeks to determine to what extent some factors like the target’s industry influence the abnormal returns around the filing date. While Clifford (2008) and Greenwood

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7 and Schor (2009) mention in which industries hedge funds often invest, there exists, to my knowledge, no paper that links the abnormal returns during a filing with the year of the filing or the industry of the target.

This thesis is structured as follows. Section 2 presents some general information on hedge funds, and then summarizes the results of some studies on hedge fund investment and activism. Section 3 yields a description of the construction of the dataset. Section 4 describes an outline of the methods used in the event studies and the regression. Section 5 shows the results of the event studies and the regression. Section 6 discusses the conclusions and academic relevance of this research and makes recommendations for further research.

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2. Literature Review

Theory predicts that the separation of ownership and control in public firms gives rise to the possibility of agency conflicts between the firm’s managers and shareholders (Jensen and Meckling, 1976). This can lead to agency costs, which have a damaging effect on shareholder value. Shareholders can reduce agency costs by monitoring the firm’s management. However, the effort the shareholders make to monitor the management is not without cost and the benefits are enjoyed by all shareholders, leading to a potential free riding problem. Shleifer and Vishny (1986) predict that large shareholders should be able to overcome this free-rider problem. Yet, studies show that over monitoring or activism efforts by large institutional shareholders like pension funds and mutual funds have had little impact on operating performance or share value (Karpoff, 2001), (Romano, 2001), (Wahal, 1996). More recent research has found that in contrast to pension funds and mutual funds, hedge funds do influence stock returns and operating performance in a positive way. Several papers on hedge funds identify reasons as to why hedge funds are better suited for shareholder activism.

First, unlike other institutional shareholders, hedge funds are not subject to regulatory limitations. This means that, unlike mutual funds, hedge funds are not required to redeem shares on short notice, they are not subject to any regulations on the percentage of assets they can hold in illiquid investments, and they can hold large stakes in their target (Kahan and Rock, 2007). Due to the lack of diversification requirements, hedge funds are able to acquire the target, which, according to Clifford (2008), increases their negotiation power. Furthermore, since hedge funds are not required to redeem shares on short notice, hedge funds have a greater ability than mutual funds and pension funds to invest in illiquid assets. Many activist hedge funds also have lockup provisions. These provisions require the hedge fund investors to keep their money invested for a fixed time, thus encouraging longer-term strategies (Boyson and Mooradian, 2011). Although hedge funds are often considered to be short-term investors, the hedge funds in the sample of Boyson and Mooradian (2011) typically stay active in their targets for over two years. Brav et al. (2008) find a median investment horizon of 556 days.

Second, Kahan and Rock (2007) note that hedge funds suffer from fewer conflicts of interest between fund managers and fund investors than other traditional institutional investors. This is partly because most hedge funds are independent investment vehicles that are not affiliated with any other institution and do not manage companies’ defined-contribution plans (Kahan and Rock, 2007).

Third, Boyson and Mooradian (2011) state that hedge fund managers have less severe agency conflicts than other activists. Hedge fund managers normally invest a substantial part of their personal assets in their funds and receive performance based compensation like incentive fees. As a result, hedge fund managers’ objectives are better aligned with investor objectives.

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2.1 Previous research on hedge fund activism in the United States

Various papers have been written about the effects of hedge fund activism. Table 1 shows an overview of the abnormal returns earlier studies on hedge fund activism have found, and how these studies differ in terms of period, country, event window and number of cases. Below is a short summary of these papers and their findings.

Period Country Event window Abnormal Return Cases Brav et al. (2008) 2001-2006 US [-20, +20] 7.2% 1,059

Klein and Zur (2009)* 2003-2005 US [-30, +30] 7.2% 151

Clifford (2008)* 1998-2005 US [-2, +2] 3.4% 788

Greenwood and Schor (2009)* 1993-2006 US [-10, +5] 3.5% 784

Krishan et al. (2015)* 2008-2014 US [-10, +10] 5.8% 1,262

Becht et al. (2010) 2000-2008 Europe [-20, +20] 4.44% 299

Becht et al. (2010) 2000-2008 The Netherlands [-20, +20] -0.82%** 21

Table 1: Overview of findings in earlier studies on abnormal announcement returns.

* Sample only includes activist hedge funds, ** not significant

According to Brav et al. (2008), hedge funds are able to influence corporate boards and management, unlike mutual and pension funds. Since hedge funds are not subject to regulation that governs mutual and pension funds, they can hold highly concentrated positions in small numbers of companies, and use leverage and derivatives to extend their reach. Brav et al. (2008) did extensive research on the effects of hedge fund activism, using a data set from 2001 to 2006 which included 236 activist hedge funds. They found that the filing of a Schedule 13D resulted in large positive average abnormal returns, in the range of 7% to 8%, during the [-20, +20) announcement window. According to Brav et al. (2008), these abnormal returns may be explained by the fact that most hedge fund activists credibly commit upfront to intervene in target firms on behalf of shareholders. They also found evidence that these abnormal returns do not just result from a stock-picking effect. The abnormal returns found by Brav et al. (2008) changed over the years. During the 6-year sample period, hedge fund activism became increasingly common and the average abnormal return during the Schedule 13D filing dropped monotonically from 15.9% in 2001 to 3.4% in 2006. Brav et al. (2008) argue that, if activism is viewed as another form of arbitrage, then it is likely that the abnormal returns associated with hedge fund activism will decline or even disappear as more funds chase after fewer attractive targets, and as the market incorporates the potential for investor intervention and improvement into security prices. Brav et al. (2008) did not find a reversal of the positive returns during the 1-year period subsequent to the announcement. They also find a slightly higher, though not statistically significant, CEO turnover rate and lower CEO pay. Lastly, they report an increase in operating performance and no change in debt.

Klein and Zur (2009) find market adjusted abnormal stock returns that are comparable with those of Brav et al. Their sample contains Schedule 13D filings from 2003 to 2005 and exists of 101 hedge fund activists. Of these hedge funds, most targeted firms in the business

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10 services industry. They also targeted firms in other industries, like pharmaceutical products, retail, hotels and banking. The goals of the hedge funds included changes in the board of directors’ composition, having a firm pursue strategic alternatives, opposing mergers, and selling the firm. These goals have a success rate of 60%. The hedge fund targets earn average abnormal returns of 5.7% over the [-30, +5] window, and 7.2% over the [-30, +30] window. Furthermore, like Brav et al. (2008), Klein and Zur (2009) find that these returns did not dissipate in the year period following the initial Schedule 13D. They measure a mean 1-year abnormal return for the hedge fund targets of 11.35%. In contrast to Brav et al. (2008), Klein and Zur (2009) report a decrease in operating performance and an increase in leverage for target firms in the year following the Schedule 13D.

Clifford (2008) examines the effects of shareholder activism by hedge funds from 1998-2005. His sample includes 197 hedge funds which are engaged in at least one case of activism during the period. This sample is split up into two groups: one including the filings that list activist purposes and one including the filings that attest that the fund has no intentions to influence the firm or management. The activist blocks mostly target the Personal/Business Services, Financial, Healthcare, and Business Equipment industries. Clifford (2008) finds average abnormal returns of 3.39% during the [-2,+2] window surrounding the announcement by an activist hedge fund, while firms targeted by passive hedge funds earn average abnormal returns of 1.64%. Furthermore, Clifford (2008) reports an average excess return of 22.32% in the year following the acquisition by an activist shareholder. In contrast, the 1-year period average excess return for passive hedge funds is 7.8%. He also finds that the market responds more favourably to more aggressive levels of activism than to less aggressive levels.

Greenwood and Schor (2009) research whether the returns to investor activism are driven by activists’ success at getting target firms taken over. Under this hypothesis, the high returns documented around the announcement of activism reflect investors’ expectations that target firms will be acquired at a premium to the current stock price. For the activist, exiting the position in the stock via a merger or takeover is beneficial since it generates a high premium and allows the activist to avoid the price pressure associated with an exit in the public markets. Greenwood and Schor (2009) construct a database of activist filings from 1993 to 2006 and find 139 hedge funds. They find abnormal returns of 3.5% over the 15-day event window. The mean abnormal returns in their sample are much higher when the hedge fund activist asks for at least one seat on the board (12.6%) or hints at increasing its stake with the intention of buying the firm (13.6%). Significant positive long-term abnormal returns are only found for targets that are ultimately acquired. Greenwood and Schor (2009) state that one implication of their research is that the announcement returns to investor activism should depend on the overall takeover interest in the market. They have found that during the credit crunch period from July to September 2007, private equity interest in debt financed buyouts declined and many activists saw drops in the value of their holdings of target firms, whose stock had been purchased in hope of a takeover.

All four studies show significant abnormal returns during the filing date of hedge funds, which are not reversed over the longer term. Furthermore, Clifford (2008), and Greenwood

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11 and Schor (2009) find higher abnormal returns for more activist funds and interventions than for passive funds. These studies do not, however, look at the period post-2006. This period might be interesting for two reasons. First, Brav et al. (2008) found that as hedge fund activism became more common, the average abnormal returns surrounding the Schedule 13D filing dropped. They argued that, if activism is viewed as another form of arbitrage, the abnormal returns associated with hedge fund activism might decline or even disappear. Second, the debt crisis started in 2007 and the Eurozone slipped into recession in 2009, which might have had some effect on the abnormal returns. Krishnan et al. (2015) study the effects of hedge fund activism from 2008 to mid-2014. They find no evidence for a decline in abnormal returns surrounding the filing date. For their whole sample, Krishnan et al. (2015) reported a cumulative average abnormal return of 5.76% during the [-10, +10] event window. Another finding of their study is that returns are significantly higher for hedge fund activists that make larger investments.

2.2 Previous research on hedge fund activism in Europe and the Netherlands

The aforementioned papers focus on hedge fund activism in the US. Becht et al. (2010) analyze 299 public activist interventions by hedge funds in Europe from 2000 till the end of 2008. They conducted an event study around the disclosure date of the initial stakes in the hedge funds’ targets and find a significant cumulative average abnormal return of 4.44% for the [-20, +20] event window, which is comparable with the returns found in the US studies. The study of Becht et al. (2010) also describes the abnormal returns per country. For the Netherlands they found 21 initial public disclosures and an abnormal return of -0.82%, which was not significant.

De Jong et al. (2007) have written an extensive paper about hedge funds and private equity funds in the Netherlands. They compared the AFM database with their list of hedge funds, which was collected by searching the paper Het Financieele Dagblad. During the period from 1985 to July 2007, 14 cases were found where Dutch corporations were actively approached by hedge funds. All of these cases occurred in the period from 2004 to 2007. De Jong et al. (2007) found that the hedge funds made various requests. In 36% of the cases, the hedge fund asked the target to divest parts of their company. Other cases include a request for change in the corporate governance structure or hedge funds asking their target to decline a takeover bid.

Since shareholder activism makes extensive use of private channels, de Jong et al. (2007) sent a questionnaire about hedge fund activism to 130 Dutch listed corporations. This has led to 46 usable replies. Of the 46 replies, 26 declared that they had been actively approached by hedge funds. Only in two cases was this activism made public. De Jong et. al. (2007) conclude that hedge funds deliberately choose when to operate in a way that is visible to other stakeholders and the media.

The research papers mentioned before have used different time spans and event windows, and found varying quantities of cases. This has also led to different abnormal returns for the period surrounding the filing date, which are summarized in table 1. The paper by Becht et al.

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12 (2010) found a small and insignificant abnormal return for hedge fund filings in the Netherlands. This result might be attributed to the fact that in the Netherlands it is not required for hedge funds to state with what purpose they have invested in the target company, or to the fact that the Netherlands has different regulations for shareholders than the US, or to the limited number of cases in the study by Becht et al. (2010).

2.3 Conclusion and hypotheses

In conclusion, most studies find that hedge fund investment is associated with significant positive abnormal returns around the filing date, which are even higher if the hedge fund is known as an activist.

Based on this literature review, I think that the abnormal returns around the filing date are smaller for the Netherlands than the US. The main reason for this is that when a hedge fund acquires a stake in a company, the objectives of the hedge fund are not yet clear. Additionally, I think the abnormal returns are larger than zero because some hedge funds are already known as activist even though they do not mention objectives in their filing and because of the stock picking effect. Thus, my hypothesis is that the abnormal returns in the [-15, +15] window around the filing date are larger than zero.

As mentioned in the literature review, there are a few things that can influence the returns around the filing date. First, Clifford (2008) concludes that filings by activist hedge funds result in higher average returns than passivist funds. Second, Brav et al. (2008) argue that the abnormal returns associated with hedge fund activism might decline in the future. Krishan et al. (2014) find no evidence for this argument. However, there might be another way in which the filing year can influence the abnormal returns. Greenwood and Schor (2009) state that the announcement returns to investor activism can depend on the overall takeover interest in the market. This leads to my hypothesis that during the Eurozone debt crisis, abnormal returns during the filing date will be lower than in other years.

Another factor that might influence the returns is the industry of the target company. Clifford (2008) and Greenwood and Schor (2009), have found that hedge funds cluster in the financial, industrial, healthcare and technology industries. Even though Clifford (2008) and Greenwood and Schor (2009) mention the industries in which hedge funds invested, they don’t mention why these industries are popular with hedge funds. These papers lead to my hypothesis that filings by activist hedge funds, and filings in companies in the financial, industrial, healthcare, and technology sector will have a positive effect on the abnormal returns, and that the year of the filing does not have an effect on the returns.

While hedge funds have to state their intentions for acquiring a substantial stake in their target in the US, in the Netherlands this is not required. The hedge funds’ intentions do however become clear when they start publicly trying to influence the target company. As mentioned before, Clifford (2008), has found that firms targeted by activist hedge funds earn, on average, higher abnormal returns than firms targeted by passivist funds. For the Netherlands this could mean that once it becomes clear that a hedge fund will become active,

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13 the target’s abnormal returns will be higher than at the filing date. This leads to my hypothesis that during the event window surrounding activist events, abnormal returns will be higher than the abnormal returns surrounding the period that a hedge fund acquires their first stake in a company.

3. Data

3.1 Data collection method

The event studies require data on hedge funds, the companies they invested in, and the dates on which the first filing and further activist events happened. For the regression, data on the industry of the target firms and data on which hedge funds are activists is needed. The years of the filing dates are already known because of the first event study.

It is possible for hedge funds to voluntarily report to various databases. However, since hedge funds are unregulated, they don’t have to report and as such, there is no comprehensive database of hedge funds. Furthermore, databases of hedge funds suffer from survivorship bias and backfill bias because hedge funds that go bankrupt are often excluded from the database and hedge fund managers can choose when they want a fund to be included in a database, which leads to exclusion of hedge funds that don’t perform well.

To avoid some of these problems, I will compile my own database, using the AFM register of substantial holdings and gross short positions. When more than 3% of the issued capital of an issuing institution is acquired, the holder is obliged to report this to the AFM. Thus, by accessing the AFM database, I can find out which entities have acquired 3% or more of the issued capital of public limited companies incorporated under Dutch law. There are 2307 filings in the period 01-01-2007 to 01-06-2015. The AFM database does not categorize the entities by investor type, so I will have to examine which of the companies are hedge funds. Since there exists no legal definition of what a hedge fund is, I rely on various sources to verify the fund’s classification. These include the funds’ web sites, hedge fund databases, newspaper and magazine articles to determine if the filer is recognized as being a hedge fund. After the construction of the database of hedge funds, I made a list of all the companies targeted by the hedge funds in my database during the period 01-01-2007 to 01-06-2015. To be able to calculate abnormal returns for the targeted companies, I obtained return index data for these companies from Datastream. This data includes reinvested dividends but does not distort this.

For the regression I need data on the industry of the target firms and data on which hedge funds are activists. As industry benchmark, the Industry Classification Benchmark (ICB) is used. I will use the first tier of the ICB, which uses a system of 10 industries, so as not to make the sample size per industry too small. This data will be acquired through Datastream.

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14 To find out whether a hedge fund is an activist, I check their site, magazine articles and the media.

For the second event study, on the effect of hedge fund activism on the returns of the targeted company, I search for reports on activist events in the media, mostly by searching through the LexisNexis database. In this search, I take into account that there might be hedge funds that had a stake before 01-01-2007 and thus do not appear in my dataset but still tried to influence a company during the period examined in this study. As activist event I classify the first time a hedge fund tries to influence the target company on a specific issue, for example governance or strategy. If this hedge fund exhibits shareholder activism at a later point in the same company, it is only counted if a different issue is targeted.

3.2 Data overview hedge fund filings

For the event study on the announcement effect of hedge fund filings, I found 58 hedge funds with 85 filings in 50 issuing institutions. Some of these could however not be used in the dataset, for reasons explained later in this section. After trimming the filings which could not be used, I have constructed a dataset that consists of 45 hedge funds with filings in 47 issuing institutions. There were 73 filings in which a hedge fund acquired 3% or more of the shares in the issuing institution for the first time.

An interesting finding is that 62% of these filings were made in the years 2013, 2014 and 2015. This is in contrast to findings by Krishnan et al. (2015), whose sample includes relatively more filings in the period before 2013 and relatively less during 2013. Assuming that the sample of Krishan et al. (2015) is not biased in a relevant way, this suggests that hedge fund activity differs between the U.S. and the Netherlands, at least during this period. Sometimes the stake in a company was listed under the name of a natural person and the hedge fund had an indirect interest. For example, on 2-12-2009 B. Rosenstein acquired a 5.26% capital stake and a 5.36% voting stake in PostNL. Rosenstein is the manager of hedge fund Jana Partners so I counted this as a filing by Jana Partners. It also happened that one hedge fund registered its stake in a company under various different legal entities, this was counted as one hedge fund. Furthermore, in two cases multiple hedge funds acquired their first substantial stake in a company on the same day. This was counted as one filing.

There were a few problems with some of the targeted companies. For example, some companies were targeted just after their Initial Public Offering (IPO), making it impossible to calculate the parameters of the estimation window, which is needed to calculate the abnormal returns. There were also a few companies that had many non-trading days during the event window and had a return index that was smaller than one. Sometimes this resulted in cumulative abnormal returns as high as 70%. The companies with the estimation window that was too small and the companies whose event window included at least ten non-trading days and a return index smaller than one were trimmed. After the trimming, there remained one outlier. This one was not trimmed, but winsorized as the company’s event window consisted of only trading days and had a return index of more than hundred. An overview of all hedge

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15 funds and target companies used for the first event study, including the ones that were excluded from the final dataset, can be found in appendix 2.

3.3 Data overview regression

Using a regression, I try to research the extent to which various factors affect the cumulative average abnormal returns found in the event study on hedge fund filings. One factor is whether the target company belongs to an industry that is often targeted by hedge funds. The target companies in my dataset represent eight out of the ten industries of the ICB. The healthcare industry sample, with just one company, was very small. Since this company was, after the healthcare industry, most similar to the industrials industry, I included it in that group for the regression. An overview of the industries of the target firms can be found in appendix 1.

Two other factors are the fact that a hedge fund is an activist and the year in which the filing was done. Of the 73 filings during the period 01-01-2007 to 01-06-2015, 12 were by activist hedge funds. The filings per year can be viewed in appendix 1.

3.4 Data overview hedge fund activism

The second event study focuses on the effect of hedge fund activism. The dataset for this study includes 19 activist events by 14 different hedge funds in 15 companies. As the starting date of the event I used the date on which the event was mentioned for the first time in the media. There was one outlier, which was winsorised. An overview of all activist events can be found in appendix 3.

While 58 hedge funds have acquired a substantial interest in companies during the period from the start of 2007 to1 June 2015, only 15 launched activist events. One reason for this is that only a minority of hedge funds pursue shareholder activism (Kahan and Rock, 2007). Another reason is that, as de Jong et al. (2007) found, activist hedge funds make extensive use of private channels. This means that not all activist events that occurred during the period 1 January 2007 to 1 June 2015 are public knowledge. Because of this, my sample does not include all activist events.

The objectives of the activist hedge funds were diverse and can be classified in many categories. For this research, four different categories are identified, each containing multiple subcategories.

The first objective involves activism targeting business strategy. This includes general operational efficiency, tax efficiency-enhancing proposals, the divestment of some divisions, and involvement of the hedge fund with a pending merger or acquisition of another company. The second category consists of activism with the purpose of selling the target. In this category, hedge funds attempt to force a sale of the target company, to oppose an offer and look for a better offer than a pending one, or try to take over the company themselves.

In the third category, events are included that target firm governance. These include efforts to rescind takeover defenses, dismiss the CEO or members of the supervisory board, demand more information disclosure and to challenge the level of executive compensation.

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16 Last, in the fourth category, hedge funds target the firms’ payout policy or capital structure. This includes increased firm leverage, higher payouts to shareholders, and equity issuance. It is possible that one activist event targets multiple issues at the same time. For example, in 2007, hedge funds Paulson & Co and Centaurus Capital went to the Dutch Enterprise Chamber because they wanted Stork NV to both change its strategy and dismiss their supervisory board. This activist event thus falls both in the first and third category.

4. Methodology

4.1 Event studies

The studies mentioned in the literature review examined the short term effect of hedge funds on share prices. They calculated the announcement effect by doing event studies surrounding the filing date. I will do an event study on the announcement effect and another on the effect of shareholder activism by hedge funds. For both event studies the same method will be used. I will look at the [-15, +15] event day window. This way, I hope to capture the effect in the case that the market acquires knowledge about the transaction prior to the actual announcement, while minimizing the chance of capturing effects of other firm-specific shocks.

First, I will estimate the expected stock returns using the market model with 185 trading days from period -200 to period -16 where day 0 is the date of either the AFM filing or the date that a hedge fund became active. For the market I will use the AEX index. The daily share prices data of the market and the companies will be retrieved using Datastream. The model is represented by:

R_𝑖𝑡 = α_𝑖+ β_𝑖(R_𝑚𝑡) + ε_𝑖𝑡 (1)

Where Rit and Rmt are the period-t returns on respectively the security i and the market portfolio, and εit is the zero mean disturbance term. αi and βi are the parameters of the model.

Second, I calculate the abnormal returns in the period [-15, +15] by subtracting the expected returns from the actual returns for each firm in the sample and each day in the event window. This is done according to the following formula:

AR𝑖𝑡 = 𝑅𝑖𝑡 − (α̂𝑖+ β̂𝑖(R𝑚𝑡)) (2)

Where ARit is the abnormal return and Rit the actual return of security i for time t. α̂𝑖 and β̂𝑖 are the parameters estimated by formula 1.

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17 Third, I will take the sum of the abnormal returns for each firm, which gives the cumulative abnormal returns (CARs). Then I take the average of the CARs to get the cumulative average abnormal return (CAAR). The CAAR is tested with a T-test to find whether it is significant.

4.2 Regression

To determine whether factors like the year in which the filing was submitted or industry of the target have a relation with the cumulative average abnormal returns found in the event study on returns around the filing date, a regression is conducted. In this regression, the dependent variables are the cumulative abnormal returns per filing. These returns are regressed on seven dummies. Five of these dummies are industries. The basic materials industry is left out so as to not cause multicollinearity. There is one dummy which is equal to one if the hedge fund that submits the filing is an activist. The last dummy variable tests the average change in the cumulative abnormal returns when the hedge fund filed their substantial interest in the period from 2009 to 2012.

𝐶𝐴𝑅_𝑖 = 𝛼 + 𝛽_{𝐶𝑂𝑁𝑆𝑈𝑀𝐸𝑅𝐺𝑂𝑂𝐷𝑆}+ 𝛽_{𝐶𝑂𝑁𝑆𝑈𝑀𝐸𝑅𝑆𝐸𝑅𝑉𝐼𝐶𝐸𝑆}+ 𝛽_{𝐹𝐼𝑁𝐴𝑁𝐶𝐼𝐴𝐿𝑆}+ 𝛽_{𝐼𝑁𝐷𝑈𝑆𝑇𝑅𝐼𝐴𝐿𝑆} + 𝛽_{𝑇𝐸𝐶𝐻𝑁𝑂𝐿𝑂𝐺𝑌}+ 𝛽_{𝑇𝐸𝐿𝐸𝐶𝑂𝑀𝑀𝑈𝑁𝐼𝐶𝐴𝑇𝐼𝑂𝑁𝑆}+ 𝛽_{𝐴𝐶𝑇𝐼𝑉𝐼𝑆𝑇}+ 𝛽_{2009𝑡𝑜2012}

5. Results

In order to answer the research question and get an idea as to whether hedge fund activism influences shareholder value, I study both the announcement effect of the first time any hedge fund takes a substantial interest in a company and of shareholder activism by hedge funds. Table 2 shows the results of both event studies, which are further explained below.

First filing Activist event

Event window CAAR T-statistic Events CAAR T-statistic Events

[-1,+1] 1.36%*** 2.48 73 1.73%*** 2.80 19

[-15,+15] 2.38%** 1.67 73 3.71%* 1.50 19

Table 2: Cumulative Average Abnormal Returns surrounding the filing date and activist events.

Where *, ** and *** represent significance at α= 0.10, α= 0.05, and α= 0.01 respectively. 5.1 Returns around hedge fund filing

The first analysis addresses the question of how the market reacts to the filing of a hedge fund for the first time that it acquires an interest of more than 3% in a Dutch company. Figure 1 shows the cumulative abnormal returns for the companies in my sample during the [-15, +15] event window. The significant cumulative average abnormal return during this event window is 2.38%. This is smaller than the abnormal returns found by the studies that focused on the US. The abnormal return found in this study is higher than the one found for Dutch companies by Becht et al. (2010). As a robustness check, the [-1, +1] cumulative average abnormal returns are also calculated. These amount to 1.36% and are significant at the 1% level.

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18

Figure 1: Cumulative Average Abnormal Returns for the 30 day period surrounding the filing date.

The cumulative average abnormal returns vary per year. As can be seen in appendix 1, in the years 2009 to 2012 the cumulative average abnormal returns were negative. Of the 18 filings issued in these years, 13 had negative cumulative abnormal returns during the [-15, +15] event window.

5.2 Regression on filing returns

As can be seen in appendix 1, hedge funds invested mostly in the financial, industrial and technology industries. Together, these industries make up 72% of the dataset for the event study on abnormal returns around hedge fund filings. This is consistent with the distribution of hedge fund investment found by Clifford (2008) and Greenwood and Schor (2009), who also found that hedge funds cluster in the financial, industrial and technology industries. However, they also found that healthcare makes up a big part of their sample, while I only find one case in which a hedge fund invested in a healthcare company. Even though Clifford (2008) and Greenwood and Schor (2009) mention the industries in which hedge funds invested, they don’t mention why these industries are popular with hedge funds. This regression gives some insight in whether these industries are associated with higher average abnormal returns. As can be seen in table 3, the dummy variables Financials, Industrials and Technology have estimated coefficients of respectively 11.9%, 14%, and 11.9%. The industrials coefficient is significant and higher than the coefficients of the other industries. The financials and technology coefficients are only significant at a 10% level but also higher than the other industries.

The activist dummy in table 3 is equal to one when a hedge fund is known to be an activist. While Clifford’s (2008) results show that abnormal returns are on average higher when an

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15

Cumulative Average Abnormal Returns

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19 activist hedge fund acquires a substantial interest in a company, I detect no significant dependence of the mean of cumulative average abnormal returns on activist hedge funds. Since previous literature has found various ways in which the abnormal returns might vary over time, the regression also contains a time dummy. This dummy is equal to one when the filing happened during the period 2009 to 2012. The year 2009 was chosen as the start of the period because the Eurozone debt crisis started in 2009 and, following the logic of Greenwood and Schor (2009), the lesser interest in takeovers during a crisis period reduces returns to activism. The period ends in 2012 because, as can be seen in appendix 1, hedge fund investment was very small in 2012 but picked up during 2013, which might imply that hedge funds thought returns to their investment would be higher in 2013. The estimated coefficient of the 2009-2012 dummy is -11.3%. It is significant and shows that, if the other factors are fixed, the cumulative average abnormal returns around a hedge fund filing date in the years 2009 to 2012 is expected to be lower than in the other years.

The adjusted R squared of this model is 11.1%. This could be because the model does not contain some variables which do have an influence on the abnormal returns. For example, Krishnan et al. (2015) found that filings by hedge funds that make larger investments result in significant higher abnormal returns.

Parameters Dependent variable

CAR Consumer Goods 0.094 (1.344) Consumer Services 0.093 (1.178) Financials 0.119* (1.810) Industrials 0.140** (2.312) Technology 0.119* (1.813) Telecommunications 0.098 (1.241) Activist 0.057 (1.357) 2009-2012 -0.113*** (-3.448) Constant -0.070 (-1.219) Observations 73 R2 0.209 Adjusted R2 0.111 t statistics in parentheses

Where *, ** and *** represent significance at α= 0.10, α= 0.05, and α= 0.01 respectively.

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20

5.3 Returns around hedge fund activist events

The second analysis seeks to find how shareholder activism by hedge funds affects the shareholder returns. In the [-15, +15] event window surrounding the announcement of an activist strategy, the target firm’s stock showed an average abnormal return of 3.71%. This estimate exceeds the abnormal returns found around the filing date but is not significantly different. As can be seen in figure 2, the cumulative average abnormal returns start building up before the event, suggesting that some knowledge about the event was acquired before the announcement. As a robustness check, the [-1, +1] cumulative average abnormal returns are also calculated. These amount to 1.73% and are significant at the 1% level.

Figure 2: Cumulative Average Abnormal Returns for the 30 day period surrounding activist events

Events where the activist hedge fund sought to influence governance of the target company resulted in the highest average abnormal returns. The cumulative average abnormal return of the activist events seeking to influence governance were 7.81%, significant at the 5% level. In contrast to this, the events that fit in the other categories, namely strategy, sale of target, and payout or capital structure, had much lower returns. Together these events had a cumulative average abnormal return of 0.95%, which was not significantly different from zero. Table 3 shows the cumulative average abnormal return (CAAR) per stated goal.

Purpose of activism CAAR T-statistic

Governance 7.81%** 2.820

Business strategy, Sale of target company, Payout policy and capital structure

0.95% 0.304

Table 3: Cumulative Average Abnormal Returns per activism category

Where **, α= 0.05 -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7 9 11 13 15

Cumulative Average Abnormal Returns

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21

6. Conclusion and further research

6.1 Conclusion

The main goal of this thesis was to research how hedge fund investment and activism affects shareholder returns in the Netherlands. The results imply that, on average, both hedge fund investment and activism are associated with positive cumulative abnormal short term returns. I have found a significant cumulative average abnormal return of 2.38% in the period from 15 days before to 15 days after the initial filing by a hedge fund. This is lower than the returns found by the studies on hedge fund investment in the US (i.a. Brav et al., 2008; Krishnan et al., 2015) A possible explanation for the average lower returns could be the fact that the objectives of hedge funds are not yet clear when they file at the AFM. The cumulative average abnormal return found in this thesis is higher than the (not significant) -0.82% return found in the paper by Becht et al. (2010), which focused on the Netherlands. This difference could be attributed to their small sample size.

The second part of my research tries to find out the extent to which various factors can affect the returns associated with hedge fund filings. While previous studies have found that activist hedge fund are associated with higher returns than passivist funds, I find no such correlation. I do find that the industry of the target company has a relation to the cumulative average abnormal returns surrounding the filing date by a hedge fund. The industry ‘industrials’ in particular seems to have a significant positive relation with the abnormal returns. This is also the industry in which most of the hedge funds in my sample have acquired a substantial interest. Additionally, I find that during the years from 2009 to 2012, the cumulative average abnormal returns surrounding hedge fund filings were the smallest of the entire sample. Brav et al. (2008) argued that if hedge fund activism is seen as a form of arbitrage, the returns might decline in the future. I don’t think that this lower returns found during the 2009 to 2012 period are evidence for their argument, since the returns increased after 2012. A possible explanation for the lower returns might be that during Eurozone debt crisis, which started in 2009, takeover interest lessened. Greenwood and Schor (2009) stated that the returns to investor activism can depend on the overall takeover interest in the market.

The third part of my research focuses on activist events by hedge funds and looks into the question whether returns during activist events were higher than returns during filings by hedge funds. The abnormal returns surrounding activist events by hedge funds were more similar to the returns found by previous studies. During the [-15, +15] event window I have found a cumulative average abnormal return 3.71%, significant at the 10% level. In contrast to my hypothesis, the returns associated with activist events were not significantly different from the returns found surrounding the filing date.

In conclusion, based on this research it seems that both hedge fund investment and activism in the Netherlands on average have a positive effect on the short-term returns of targeted companies.

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22 While some interesting results were found, this study has limitations.

First, the sample of both hedge fund filings and activist events is small in comparison with previous research. This has led to small samples when trying to measure a specific effect, like in the regression. In some cases the sample was too small to draw conclusions.

Second, the data on hedge funds and targeted companies in this study was collected by searching in the AFM database. One disadvantage of the AFM database is that it only lists investments of more than 3%. It is however possible for a hedge fund to be active with less than 3% stake in a company. For example, only 1% of the issuing capital of a legal entity is needed to be able to add proposals to the shareholders annual meeting. My sample for the event study on the effect of hedge fund filings on the target’s return does not include filings in which a hedge fund acquired less than a 3% stake, which might bias the sample towards bigger hedge funds and smaller target companies.

6.2 Further research

This research examined the effect of hedge fund activism on shareholder value. However, hedge fund activism can also have effects on other aspects. Critics argue that hedge fund activism has an adverse effect on the long-term value of the firm, employees and other stakeholders (Lipton, Lewis & Lipton, 2015). Future research could focus on the question of whether hedge fund activism creates value or only increases the stock price by transferring value from, e.g., bondholders and employees.

Bebchuk et al. (2015) research the long-term effects of hedge fund activism. They find that activist interventions are followed by improved operating performance of the target company during the five-year period following these interventions. These results are however not widely accepted. Allaire and Dauphin (2014) discuss the paper by Bebchuk et al. (2015) and criticize it because the paper does not mention what happened to the companies that were targeted by hedge funds but are not in the database five years later. These companies were probably sold, merged or liquidated. The paper by Bebchuk et al. (2015) does also not discuss failed interventions by hedge funds.

Some research on the effect of hedge fund activism on bondholders has also been done. Klein and Zur (2011) find drops in bond prices and rating downgrades for the target firms’ bonds in the year subsequent to initial 13D filings by hedge funds.

It is difficult to research the effect of hedge fund activism on employees of the target company. One way to research a potential wealth transfer from employees to shareholders is to examine both companies targeted by hedge funds and a control group. Then one could study the differences in wages, pensions, work times and layoffs. Brav et al. (2015) have already found that employees of target firms exhibit a rise in productivity but that there is also a stagnation in their wages, which implies a possible wealth transfer from the target firm’s employees to their shareholders.

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23 In conclusion, while some research has been done on the question whether hedge fund activism creates value, much can still be investigated. Since some research on the wealth transfer from bondholders already exists, it might be interesting to also look at the effect on bank loans. The problem with researching this and also with finding data on wages, pensions, work times and layoffs, is that not much data is easily available. One solution could be to send surveys to companies, questioning them on whether they have been targeted by hedge funds, and what the implications this has had on employees. Also, permission could be asked of the targeted companies to let banks give their vision on loans to the targeted companies after hedge fund activism. As for research on the long-term effects of hedge fund activism on operating performance and shareholder value, it may be crucial to avoid survivorship bias vigilantly. Furthermore, it is advisable to clearly state what has happened to companies that were deleted from the sample, for example whether they have been merged, sold, or liquidated.

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References

Allaire, Y. and Dauphin, F., 2014. “Activist” hedge funds: creators of lasting wealth?

Institute for governance of private and public organizations.

Becht, M., Franks, J. & Grant, J., 2010. Hedge Fund Activism in Europe. ECGI Working

Paper Series in Finance.

Bebchuk, L., Brav, A. and Jiang, W., 2015. The Long-Term Effects of Hedge Fund Activism.

Columbia Law Review. Vol. 114. (Forthcoming)

Boyson, N., & Mooradian, R., 2011. Corporate governance and hedge fund activism. Review

of Derivatives Research. 14(2), 169-204.

Brav, A., Jiang, W., Partnoy, F. & Thomas, R., 2008. Hedge Fund Activism, Corporate Governance, and Firm Performance. The Journal of Finance. 63(4), 1729-1775. Brav, A., Jiang, W. & Kim, H., 2015. The Real Effects of Hedge Fund Activism:

Productivity, Asset Allocation, and Labor Outcomes. Unpublished Working Paper. Clifford, C., 2008. Value creation or destruction? Hedge funds as shareholder activists.

Journal of Corporate Finance. 14(4), 323-336.

Greenwood, R. & Schor, M. , 2009. Investor Activism and takeovers. Journal of Financial

Economics. Vol. 92(3): 362-375.

Jensen, M. & Meckling, W.H., 1976. Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics. 3(4), 305-360.

Jong, A. de, Roosenboom, P., Verbeek, M. & Verwijmeren, P., 2007. Hedgefondsen en Private Equity in Nederland, RSM Erasmus University.

Kahan, M. & Rock, B., 2007. Hedge Funds in Corporate Governance and Corporate Control.

University of Pennsylvania Law Review. Vol. 155: 1021-1093.

Karpoff, J., 2001. The Impact of Shareholder Activism on Target Companies: A Survey of Empirical Findings. Unpublished Working Paper, University of Washington.

Klein, A. & Zur, E., 2009. Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors. The Journal of Finance. 64(1), 187-229.

Klein, A. & Zur, E., 2011. The Impact of Hedge Fund Activism on the Target Firm’s Existing Bondholders. Review of Financial Studies. 24(5), 1735-1771.

Krishnan, C., Partnoy, F. & Thomas, R., 2015. Top Hedge Funds and Shareholder Activism.

Vanderbilt Law and Economics Research Paper. 15(9), 1-58.

Lewis, S., Lipton, M. & Lipton, W., 2015. The Threat to Shareholders and the Economy from Activist Hedge Funds. Retrieved from http://corpgov.law.harvard.edu/2015/01/14/the -threat-to-shareholders-and-the-economy-from-activist-hedge-funds/

Romano, R., 2001. Less is More: Making Institutional Investor Activism a Valuable Mechanism of Corporate Governance. Yale Journal on Regulation. 18, 174-251. Sheifer, A., & Vishny, R., 1986. Large Shareholders and Corporate Control, Journal of

Political Economy. 94(3), 461-488.

Wahal, S., 1996. Public Pension Fund Activism and Firm Performance. Journal of Financial

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Appendix 1: Descriptive Statistics

Number of funds and target firms

Total number of first time filings 73 Total number of target firms 47 Total number of hedge funds 45 Total number of activist events 19

First filings per year

Year Frequency Percent CAAR

2007 6 8.22% 6.06% 2008 5 6.85% 9.81% 2009 7 9.59% -4.70% 2010 6 8.22% -1.92% 2011 3 4.11% -9.99% 2012 2 2.74% -10.72% 2013 20 27.40% 4.61% 2014 15 20.55% 1.61% 2015* 9 12.33% 7.55%

Activist events per year

Year Frequency Percent

2007 4 21.05% 2008 3 15.79% 2009 1 5.26% 2010 0 0% 2011 0 0% 2012 2 10.53% 2013 3 15.79% 2014 5 26.32% 2015* 1 5.26% Purpose of activism Frequency Percent Business strategy 11 45.83%

Sale of target company 2 8.33%

Governance 9 37.50%

Payout policy and capital structure 2 8.33%

Industry of target firm

Frequency Percent Basic Materials 4 5.56% Consumer Goods 6 8.33% Consumer Services 5 6.94% Financials 16 22.22% Health Care 1 1.39% Industrials 22 30.56% Technology 14 19.44% Telecommunications 4 5.56% *t/m 01-06-2015

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Appendix 2: Hedge fund filings

Event Date Hedge fund Target Remark2

11-05-07 Lucerne Capital Management LLC ARCADIS N.V. 08-06-07 Highclere International Investors LLP Koninklijke Brill N.V.

07-09-07 Citadel Equity Fund Limited AMG Advanced Metallurgical Group N.V.

03-10-07 Paulson & Co Inc Akzo Nobel N.V.

20-11-07 Wellington Management Group LLP Eurocastle Investment Limited 10-12-07 Luxor Management LLC AMG Advanced Metallurgical

Group N.V.

14-02-08 Laxey Partners Limited Ballast Nedam N.V. 04-03-08 Lansdowne Partners Limited PostNL N.V.

10-04-08 Wellington Management Group LLP ASML Holding N.V. 23-04-08 Centaurus Capital Ltd ASM International N.V. 02-05-08 Fortress Investment Group LLC Eurocastle Investment Limited 23-06-09 Indus Capital Partners LLC Eurocastle Investment Limited 15-09-09 Threadneedle Asset Management Holdings Ltd Sligro Food Group N.V. 07-10-09 Pioneer Asset Management S.A. Gemalto N.V.

21-10-09 Delta Partners LLC Koninklijke Wessanen N.V.

02-12-09 Jana Capital PostNL N.V.

03-12-09 Threadneedle Asset Management Holdings Ltd Beter Bed Holding N.V. 24-12-09 Weiss Asset Management LP Eurocastle Investment Limited 07-05-10 Greenlight Capital Delta Lloyd N.V.

01-07-10 Henderson Global Investors SMARTRAC N.V. 22-07-10 Sageview Capital MGP LLC Unit4 N.V.

07-10-10 Cantillon Capital Management LLC Aalberts Industries N.V. 26-10-10 Halcyon Asset Management LLC Brit Insurance Holdings N.V. 28-12-10 Blackstone Alternative Asset Management L.P. Boussard & Gavaudan Holding

Limited

20-04-11 JP Morgan Asset Management AMG Advanced Metallurgical Group N.V.

05-05-11 JP Morgan Asset Management BE Semiconductor Industries N.V.

20-07-11 Causeway Capital Management LLC PostNL N.V. 29-05-12 RWC Partners Limited Grontmij N.V.

26-09-12 Meditor Capital Management Limited ASM International N.V. 26-04-13 York Capital Management Global Advisors,

LLC

Eurocastle Investment Limited 1

13-05-13 Abrams Capital Management L.P. Eurocastle Investment Limited 1 16-05-13 Deerfield management company L.P. Pharming Group N.V. 1 30-05-13 EMS Capital LP, Kingdon Capital Management Eurocastle Investment Limited 1

2

Changed / trimmed because:

1. Trimmed because there were many non-trading days in event window and stock was worth less than 1 euro

2. Trimmed because there was not enough stock data for the estimation or event window 3. Winsorised because it does belong in the sample but has an outlier

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27 LLC, Select Equity Group Inc.

03-06-13 Causeway Capital Management LLC Reed Elsevier N.V.

18-06-13 Nantahala Capital Management LLC NedSense Enterprises N.V. 25-06-14 York Capital Management Global Advisors

LLC

Euronext N.V. 2

01-07-13 Blue Ridge Capital L.C.C. D.E MASTER BLENDERS 1753 N.V.

01-07-13 Causeway Capital Management LLC Akzo Nobel N.V. 01-07-13 Generation Investment Management LLP

Platinum Investment Management Ltd.

Qiagen N.V.

01-07-13 Kingdon Capital Management LLC Pharming Group N.V. 1 01-07-13 Marathon Asset Management LLP Koninklijke Boskalis

Westminster N.V. 01-07-13 Wellington Management Group LLP Delta Lloyd N.V. 19-07-13 JP Morgan Asset Management PostNL N.V.

25-07-13 HBK Investments L.P. ASM International N.V.

29-07-13 Broadfin Capital LLC Pharming Group N.V. 1

30-07-13 Discovery Capital Management, LLC Koninklijke KPN N.V. 3 02-08-13 Hengistbury Investment Partners LLP Nutreco N.V.

29-08-13 Edinburgh Partners PostNL N.V.

29-08-13 Wellington Management Group LLP KAS Bank N.V.

04-09-13 RGM Capital LLC Unit4 N.V.

08-10-13 Luxor Management LLC Corio N.V. 25-10-13 JP Morgan Asset Management USG People N.V. 03-12-13 AQR Capital Management, LLC Unit4 N.V. 11-12-13 Water Island Capital, LLC Unit4 N.V.

13-12-13 Eminence Capital LP ASM International N.V. 20-12-13 RWC Partners Limited Corbion N.V.

06-01-14 Davidson Kempner Capital Management LLC Plaza Centers N.V. 1 24-01-14 Highclere International Investors LLP Koninklijke Wessanen N.V.

27-01-14 JP Morgan Asset Management Vastned Retail N.V. 06-02-14 Wellington Management Group LLP Constellium N.V. 24-03-14 Paulson & Co Inc Koninklijke KPN N.V. 24-03-14 Pentwater Capital Management LP Ziggo N.V.

06-05-14 Fortress Investment Group LLC Tetragon Financial Group Limited

11-07-14 JP Morgan Asset Management arGEN-X N.V. 2

28-08-14 HBK Investments L.P. Ziggo N.V.

04-09-14 Orbis Investment Management Limited Royal Imtech N.V. 10-09-14 JP Morgan Asset Management TKH Group N.V. 01-10-14 Franklin Templeton Investment Funds TNT Express N.V.

01-10-14 Third Point LLC Koninklijke DSM N.V.

10-10-14 Highclere International Investors LLP TomTom N.V. 14-11-14 Independent Franchise Partners LLP Wolters Kluwer N.V. 15-12-14 Wellington Management Group LLP Van Lanschot N.V. 23-12-14 York Capital Management Global Advisors,

LLC

Plaza Centers N.V. 1

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28 16-01-15 AQR Capital Management, LLC Delta Lloyd N.V.

16-01-15 Weiss Asset Management LP Boussard & Gavaudan Holding Limited

26-01-15 The Children’s Investment Fund Management LLP

Airbus Group N.V.

19-02-15 Water Island Capital, LLC Nutreco N.V. 05-03-15 JP Morgan Asset Management Euronext N.V. 09-03-15 Weiss Asset Management LP Yatra Capital Limited 24-03-15 Wellington Management Group LLP PostNL N.V.

27-03-15 Citadel Equity Fund Limited, Pelham Capital Ltd.

Refresco Gerber N.V. 2

20-04-15 Pentwater Capital Management LP TNT Express N.V.

29-04-15 CQS LLP, EJF Capital LLC, GLG Partners LP Eurocastle Investment Limited 1 11-05-15 Cantillon Capital Management LLC ARCADIS N.V.

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Appendix 3: Activist events

Event Date Hedge fund Target Goal3 Remark4

05-01-07 Paulson & Co Inc, Centaurus Capital Ltd Stork N.V. 1, 3 05-02-07 Centaurus Capital Ltd, Amber Capital LLP,

Fursa alternative Strategies LLC

Versatel N.V. 3

ABN AMRO Group N.V.

1

03-10-07 Paulson & Co Inc, Centaurus Capital Ltd Akzo Nobel N.V. 1 31-03-08 Fursa Alternative Strategies LLC, Hermes

focus asset management Europe ltd

ASM International N.V. 3

03-04-08 Amber Capital OPG Groep N.V. 1, 3

19-05-08 Fursa Alternative Strategies LLC, Hermes focus asset management Europe ltd

ASM International N.V. 1

09-12-09 JANA Capital LLC TNT Express N.V. 1 2

23-02-10 Hermes focus asset management Europe ltd, Orbis Investment Management Limited

Océ N.V. 2

06-01-12 JANA Capital LLC TNT Express N.V. 3

05-07-12 Delta Partners, LLC Koninklijke Wessanen N.V.

3

18-01-13 Lutetia Capital PostNL N.V. 1, 4 3

Airbus Group N.V. 1, 4

02-12-13 Centaurus Capital Ltd SBM Offshore N.V. 1 25-01-14 Delta Partners, LLC Koninklijke Wessanen

N.V.

3

18-06-14 Paulson & Co Inc Koninklijke KPN N.V. 1

18-07-14 Third Point LLC Koninklijke KPN N.V. 1

18-11-14 Hengistbury Investment Partners LLP Nutreco N.V. 2 29-11-14 Franklin Templeton Investment Funds TNT Express N.V. 3 09-03-15 RWC European Focus Master Inc AMG Advanced

Metallurgical Group N.V.

1,3

3_{Objective of activism: 1: Business strategy, focus/divestment, M&A. 2: Sale of target company. 3:}

Governance, replacement of CEO, directors and members of the supervisory board. 4: Capital and payout structure.

4

2: Trimmed because there were many non-trading days in the event window and stock was worth less than 1 euro. 3: Winsorised because it does belong in the sample but has an outlier.

The short-term effects of hedge fund Investment and activism on shareholder value