Long-Term Economic Consequences of Hedge Fund Activist Interventions
Review of Accounting Studies,, Long-term economic consequences of hedge fund activist interventions June 2019, Volume 24, Issue 2, pp 536–569
58 Pages Posted: 3 Oct 2018 Last revised: 7 Jun 2019
Date Written: December 31, 2018
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 Activist Interventions, Activist Interventions, Activist Hedge Funds, shareholder wealth, pre-activism performance, shareholders, Government Policy and Regulation, corporate governance
JEL Classification: G34; G38; G14; M41; M48
Suggested Citation: Suggested Citation