The Returns to Hedge Fund Activism
Duke University - Fuqua School of Business
Columbia Business School - Finance and Economics
University of San Diego School of Law
Randall S. Thomas
Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)
ECGI - Law Working Paper No. 098/2008
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.
Number of Pages in PDF File: 35
Keywords: Hedge Fund, Activism, Governance
JEL Classification: G14, G23, G3
Date posted: March 24, 2008
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