 Hedge fund activism, R&D efficiency and firm valueJustin Watson, Janice How and Peter Verhoeven Research in International Business and Finance, 2024, vol. 71, issue C Abstract: We investigate the effectiveness of hedge fund activism in addressing inefficient R&D investment and creating long-term value at target firms. Using an endogenous growth model to estimate efficient R&D investment levels, we find target firms exhibit a tendency to overinvest in R&D. The likelihood of being targeted and activism announcement returns increase with R&D overinvestment. Despite observable cuts in R&D expenditure following activism, our analysis shows no significant improvement in R&D efficiency over the subsequent three years. Additional tests, controlling for the activist’s objectives, reputation, and stock selection ability, reveal a negative impact of activism on value creation. Our study offers important insights into how hedge fund activism shapes corporate R&D strategies and highlights challenges in achieving sustainable innovation and value enhancement through activist interventions. Keywords: Hedge fund activism; Innovation; R&D efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002873 DOI: 10.1016/j.ribaf.2024.102494 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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