Top Management Turnover Under the Influence of Activist Investors

We analyze the presence of activist investors (hedge funds and private equity funds) and their impact on top management turnover in Germany. We contrast two hypotheses. The monitoring hypothesis is based on agency theory. Under this hypothesis, we expect active investors to increase top management turnover as a consequence of their monitoring efforts. Under the restraint hypothesis, we expect active investors to exert little influence on top management turnover in consequence of the comparatively limited discretion they have in Germany due to, e.g., regulatory restraints. We test both hypotheses using an event history analysis based on a sample of top managers in the 100 largest German corporations between 1998 and 2008. Contrary to studies based on agency theory in a U.S. context, and in accordance with the restraint hypothesis, we do not find increased top management turnover under the presence of activist investors. The presence of private equity funds is not associated with any significant influence on turnover, but that of hedge funds may even reduce top management turnover