publication . Article . Other literature type . 2009

Hedge Funds as Investors of Last Resort?

David J. Brophy; Clemens Sialm; Paige Parker Ouimet;
Open Access
  • Published: 01 Feb 2009 Journal: The Review of Financial Studies, volume 22, issue 2 2, pages 541-574
Abstract
Hedge funds have become important investors in public companies raising equity privately. Hedge funds tend to finance companies that have poor fundamentals and pronounced information asymmetries. To compensate for these shortcomings, hedge funds protect themselves by requiring substantial discounts, negotiating repricing rights, and entering into short positions of the underlying stocks. We find that companies that obtain financing from hedge funds significantly underperform companies that obtain financing from other investors during the following two years. We argue that hedge funds are investors of last resort and provide funding for companies that are otherwi...
Subjects
free text keywords: Business, Institutional investor, Financial system, Open-end fund, Commodity pool, Hedge fund, business.industry, Global assets under management, Alternative beta, Fund of funds, Finance, Hedge accounting
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