Hedge fund activism and corporate intangible capital investments

Christof Beuselinck and Luc Desrousseaux
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Christof Beuselinck: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Luc Desrousseaux: IÉSEG School Of Management [Puteaux]

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Abstract: We examine the impact of activist hedge fund campaigns on corporate Intangible Capital (IC) investments, a key determinant of corporate long-term growth and performance. We document that post-activist campaigns, targeted firms reduce IC investments by more than 10% compared to carefully matched non-target firms. In cross-sectional analyses, we observe the largest effects in less competitive industries, for older target firms and for firms with high financial constraints suggesting that IC cuts are more common in low-discipline and low-barriers-to-invest contexts. Hedge funds are cutting down IC investments when they engage both in relatively short and longer interventions but especially so when they have less industry investment experience. Further, we do not find evidence of post-intervention increased investment efficiency in targeted firms, casting some doubt on the longer-term value-added of activist IC slashing campaigns. Finally, in an attempt to identify where the saved IC resources post intervention flow to, we observe that targeted firms increase corporate payouts and prefer share repurchase programs above cash dividends.

Date: 2024-02-20
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Published in Review of Quantitative Finance and Accounting, 2024, 63 (1), pp.37-61

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04836725

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