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How Does Hedge Fund Activism Reshape Corporate Innovation?

Alon Brav, Wei Jiang, Song Ma and Xuan Tian

No 22273, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how hedge fund activism reshapes corporate innovation. Firms targeted by hedge fund activists experience an improvement in innovation efficiency during the five-year period following the intervention. Despite a tightening in R&D expenditures, target firms experience increases in innovation output, measured by both patent counts and citations, with stronger effects seen among firms with more diversified innovation portfolios. We also find that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation. Finally, additional tests refute alternative explanations attributing the improvement to mean reversion, sample attrition, management’s voluntary reforms, or activists’ stock-picking abilities.

JEL-codes: G23 G3 G34 O31 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-cfn, nep-ino and nep-sbm
Note: CF PR
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Published as Alon Brav & Wei Jiang & Song Ma & Xuan Tian, 2018. "How does hedge fund activism reshape corporate innovation?," Journal of Financial Economics, .

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