The Returns to Hedge Fund Activism

35 Pages Posted: 24 Mar 2008

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Wei Jiang

Emory University Goizueta Business School; ECGI; NBER

Frank Partnoy

University of California, Berkeley - School of Law

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from 2001 to 2006 we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. The abnormal stock return upon announcement of activism is approximately seven percent, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. We also find large positive abnormal return to the self-reported hedge fund activists during our sample period. The abnormal return significantly exceeds the returns to all hedge funds, the returns to equity-oriented hedge funds and is robust to alternative risk adjustments and selection biases.

Keywords: Hedge Fund, Activism, Governance

JEL Classification: G14, G23, G3

Suggested Citation

Brav, Alon and Jiang, Wei and Partnoy, Frank and Thomas, Randall S. and Thomas, Randall S., The Returns to Hedge Fund Activism (March 2008). ECGI - Law Working Paper No. 098/2008, Available at SSRN: https://ssrn.com/abstract=1111778 or http://dx.doi.org/10.2139/ssrn.1111778

Alon Brav

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
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European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Wei Jiang

Emory University Goizueta Business School ( email )

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ECGI ( email )

c/o the Royal Academies of Belgium
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Belgium

NBER ( email )

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Frank Partnoy

University of California, Berkeley - School of Law ( email )

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Berkeley, CA 94720-7200
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Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

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