Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/294001 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Corporate Accounting & Finance [ISSN:] 1097-0053 [Volume:] 35 [Issue:] 2 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 357-374
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
This research study provides insights on how activist hedge funds perform valuation analyses of target firms. Relevant data was hand-collected from a sample of activist hedge fund presentations. Based on the hedge funds’ valuation analyses, the undervaluation of the target firms amounts to approximately 30%, compared to the targets’ current share price. Besides, activist investors derive a value enhancement potential from their proposed strategies of approximately 70% to the targets’ current share price. These valuation results rely predominately on trading multiples. The dominant multiples are Enterprise value/EBITDA (EV/EBITDA) and Price/Earnings (P/E). Further, applied multiples are mainly forward-looking, and the predicted performance measures are primarily consensus estimates. Besides, hedge funds sometimes adjust multiples arbitrarily to increase the comparability. Our results confirm that short-term investors rely predominately on pricing analyses in their valuations.
Subjects: 
corporate finance
corporate valuation
hedge funds
shareholder activism
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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