The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Industry Concentration
Duke University - Fuqua School of Business
Columbia Business School - Finance and Economics
Cornell University - Samuel Curtis Johnson Graduate School of Management
May 23, 2013
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 within three years after the intervention, and this improvement is pronounced in industries with low concentration. By following plants that were sold post-intervention we also find 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 management’s voluntary reform, industry consolidation shocks, and hedge funds’ stock picking. The overall evidence is consistent with a real long-term effect of hedge fund intervention on target firms’ fundamentals.
Number of Pages in PDF File: 48
Keywords: Hedge fund activism, Governance, Productivity, Capital Reallocation, Employment
JEL Classification: G12, G23, G34working papers series
Date posted: March 15, 2012 ; Last revised: May 23, 2013
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