Long-term economic consequences of hedge fund activist interventions

Ed deHaan, David Larcker () and Charles McClure
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David Larcker: Stanford University
Charles McClure: University of Chicago

Review of Accounting Studies, 2019, vol. 24, issue 2, No 5, 536-569

Abstract: Abstract We examine the long-term effects of interventions by activist hedge funds. Research documents positive equal-weighted long-term returns and operating performance improvements following activist interventions, and typically conclude that activism is beneficial. We extend the literature in two ways. First, we find that equal-weighted long-term returns are driven by the smallest 20% of firms, with an average market value of $22 million. The larger 80% of firms experience insignificant negative long-term returns. On a value-weighted basis, which likely best gauges the effects on shareholder wealth and the economy, we find that pre- to post-activism long-term returns insignificantly differ from zero. For operating performance, we find that prior results are a manifestation of abnormal trends in pre-activism performance. Using an appropriately matched sample, we find no evidence of abnormal post-activism performance improvements. Overall, our results do not strongly support the hypothesis that activist interventions drive long-term benefits for the typical shareholder, nor do we find evidence of shareholder harm.

Keywords: Hedge fund activists; Long-term economic value of activism (search for similar items in EconPapers)
JEL-codes: G14 G34 G38 M41 M48 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (15)

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Working Paper: Long-Term Economic Consequences of Hedge Fund Activist Interventions (2018)
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DOI: 10.1007/s11142-019-9480-8

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