Question 1

Which of the following is true?&#10;A) Hedge funds tend to facilitate more M&As&#10;B) Hedge funds tend to have a dampening effect on M&As&#10;C) Hedge funds are neutral as it relates to M&A activity&#10;D) None of the above True or False Questions

Accepted Answer

Hedge funds often play a significant role in facilitating mergers and acquisitions (M&As) by investing in or taking positions in companies that are potential targets, thereby sometimes increasing the likelihood of M&A activities.

Question 2

Which of the following is not an example of an activist hedge funds?&#10;A) Carl Icahn Enterprises&#10;B) Relational Investors&#10;C) Goldman Sachs&#10;D) Jana

Accepted Answer

Activist hedge funds are investment funds that take significant positions in public companies to influence their management and operations. Carl Icahn Enterprises, Relational Investors, and Jana are known for such activities. Goldman Sachs, however, is a multinational investment bank and financial services company that does not primarily function as an activist hedge fund.

Question 3

Research, such as the work of Greenwood and Schoar, found that financial performance of companies improve after activists establish stock positions in the firms.

Accepted Answer

Research by Greenwood and Schoar has shown that the financial performance of companies often improves after activist investors take positions in them, suggesting that these investors can play a positive role in enhancing company value.

Question 4

Research, such as the work of Clifford, has established that when activists establish share position in target shareholder wealth declines.

Accepted Answer

Research, including that by Clifford, often finds that activist shareholders can actually increase shareholder wealth by pushing for changes that improve company performance and governance.

Question 5

Which of the following is a potent defense against activist hedge funds?&#10;A) Poison pills&#10;B) Staggered boards&#10;C) Improved financial performance&#10;D) All the above&#10;E) None of the above

Accepted Answer

The answer of Which of the following is a potent...

Question 6

There is research which supports the view that investments in activist funds tend to outperform nonactivist hedge fund investments.

Accepted Answer

Research has shown that investments in activist funds can indeed outperform non-activist hedge fund investments. Activist funds, which often take significant stakes in companies to influence management and strategic direction, have been found to generate higher returns compared to more passive investment strategies, as their active involvement can lead to improvements in company performance and shareholder value.

Question 7

Activists acquire stock positions with intent to make changes in the company which will increase the stock price and give them a profit.

Accepted Answer

Activists acquire stock positions in companies with the intent to influence the company's operations, management, or strategic direction in ways they believe will increase the company's value and, consequently, the stock price, leading to a profit for themselves.

Question 8

Which of the following may be a valid criticism of activist hedge funds?&#10;A) May cause target firms to be too short-term oriented&#10;B) Tend to reduce target financial performance&#10;C) Often fail to yield positive returns for investors&#10;D) All the above&#10;E) None of the above

Accepted Answer

Activist hedge funds often push for changes that can lead to companies focusing more on short-term gains rather than long-term growth and sustainability. This can be a valid criticism as it may not always align with the best interests of the company or its stakeholders in the long run.

Question 9

Answer: Research, such as the work of Huang, found that companies which had activists in their shareholder base tended to receive higher takeover premiums when they are sold.

Accepted Answer

Research by Wei Jiang, Kai Li, and Wei Wang, as well as others like Huang, has shown that companies with activist investors in their shareholder base often receive higher takeover premiums, as these activists push for changes that can increase the company's value, making it more attractive in a sale.

Question 10

Which of the following are examples of factors that facilitated the growth of activist hedge funds over the years 2012-2018?&#10;A) Rising stock market&#10;B) High cash balances of U.S. companies&#10;C) Growth of the U.S. economy&#10;D) All the above

Accepted Answer

All the options listed (A: Rising stock market, B: High cash balances of U.S. companies, C: Growth of the U.S. economy) are factors that facilitated the growth of activist hedge funds during the years 2012-2018. A rising stock market and high cash balances made companies attractive targets for activist investors, while overall economic growth provided a favorable environment for their strategies.

Deck 7: Hedge Funds As Activist Investors