US Barbarians at the Japan Gate:

Cross Border Hedge Fund Activism

February 2008
Konari Uchida^*1
Peng Xu^*2

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Abstract

We investigate causes and consequences of the emerging shareholder hostility in Japan. Steel Partners, an activist hedge fund based in San Francisco, takes big stakes in more than 30 Japanese firms and pushes for strategic changes and sometimes tries to gain control of whole businesses. Meanwhile, Murakami Fund, a fresh Japanese activist fund, targets more than 40 firms. Steel Partner's targets typically have more cash but lower market valuations, whereas Murakami Fund is more likely to target cash-rich firms only. Targets exhibit abnormal returns of about 5% around the announcement of activist investors taking large stakes. And the stock market responses more favorably when targets have more cash and lower market valuations. In addition, the stock market seems to evaluate Steel Partner's track record to create shareholder values. Finally, the targets' long-term stock return does not revert to negative values.

JEL Classification:
G32 G34

Keywords:
Activist Fund; Shareholder Hostility; Free Cash Flow; Corporate Governance

• *1 The University of Kitakyushu
• *2 Hosei University
  E-mail: pxu@hosei.ac.jp

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