Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism
Duke University - Fuqua School of Business
Columbia Business School - Finance and Economics
Indiana University - Kelley School of Business - Department of Finance
March 14, 2014
Kelley School of Business Research Paper No. 2014-05
We examine whether hedge fund activism affects corporate innovation. We find that firms targeted by hedge fund activists experience an improvement in innovation efficiency within three years after the intervention as evidenced by a significant drop in R&D spending but an increase in innovation output measured by both patent counts and citations. We then show that hedge fund activists improve target firms’ innovation efficiency via the reallocation of innovative resources and the redeployment of human capital. Finally, we show that the link between hedge fund interventions and improvements in innovation efficiency is potentially driven by firms’ assets reallocation triggered by activists. Our paper is the first study that sheds light on the real effect of strengthened shareholder power in reshaping corporate innovation.
Number of Pages in PDF File: 40
Keywords: Hedge fund activism, Innovation, Resource allocation, Human capital redeployment
JEL Classification: G23, G34, O31working papers series
Date posted: March 17, 2014
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