The Long-Term Effects of Hedge Fund Activism

Lucian Bebchuk (), Alon Brav and Wei Jiang

No 21227, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We test the empirical validity of a claim that has been playing a central role in debates on corporate governance—the claim that interventions by activist hedge funds have a negative effect on the long-term shareholder value and corporate performance. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data. We find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention’s long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Our findings have significant implications for ongoing policy debates.

JEL-codes: G12 G23 G32 G34 G35 G38 K22 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-cfn and nep-fmk
Note: AP CF LE
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Citations: View citations in EconPapers (84)

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