Long-Term Economic Consequences of Hedge Fund Activist Interventions

Ed deHaan, David F. Larcker and Charles McClure
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David F. Larcker: Graduate School of Business, Stanford University and Rock Center for Corporate Governance
Charles McClure: Booth School of Business, University of Chicago

Research Papers from Stanford University, Graduate School of Business

Abstract: We examine the long-term effects of interventions by activist hedge funds. Prior papers document positive equal-weighted long-term returns and operating performance improvements following activist interventions, and typically conclude that activism is beneficial. We extend prior 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 effects on shareholder wealth and the economy, we find that pre- to post-activism long-term returns are insignificantly different 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.

JEL-codes: G14 G34 G38 M41 M48 (search for similar items in EconPapers)
Date: 2018-10
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Journal Article: Long-term economic consequences of hedge fund activist interventions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3741

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