The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes
Duke University - Fuqua School of Business
Columbia Business School - Finance and Economics
Cornell University - Samuel Curtis Johnson Graduate School of Management
January 19, 2015
This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency in the three years after an activist intervention, and the improvements are most pronounced in those interventions specifically targeting the firm’s business strategy. We also find that plants sold post-intervention exhibit a significant improvement in productivity under new ownership, consistent with the view that efficient capital redeployment is an important channel via which activists create value. We further find that employees of target firms experience a reduction in work hours and stagnation in wages despite an increase in labor productivity. Additional tests refute alternative explanations that attribute the improvement to mean reversion, management’s voluntary reforms, industry consolidation shocks, or hedge funds’ stock picking abilities. The overall evidence is consistent with hedge fund intervention having a real and long-term effect on the fundamental values of target firms.
Number of Pages in PDF File: 56
Keywords: Hedge fund activism, Governance, Productivity, Capital Reallocation, Labor Outcomes
JEL Classification: G12, G23, G34working papers series
Date posted: March 15, 2012 ; Last revised: January 21, 2015
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