Abstract

http://ssrn.com/abstract=2409404
 


 



How Does Hedge Fund Activism Reshape Corporate Innovation?


Alon Brav


Duke University - Fuqua School of Business

Wei Jiang


Columbia Business School - Finance and Economics

Song Ma


Yale School of Management

Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

May 16, 2016


Abstract:     
This paper studies how hedge fund activism reshapes corporate innovation. Firms targeted by hedge fund activists experience an improvement in innovation efficiency during the five-year period following the intervention. Despite a tightening in R&D expenditures, target firms experience increases in innovation output, measured by both patent counts and citations, with stronger effects seen among firms with more diversified innovation portfolios. We also find that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation. Finally, additional tests refute alternative explanations attributing the improvement to mean reversion, sample attrition, management’s voluntary reforms, or activists’ stock-picking abilities.

Number of Pages in PDF File: 69

Keywords: Hedge fund activism, Innovation, Resource allocation, Human capital redeployment

JEL Classification: G23, G34, O31


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Date posted: March 17, 2014 ; Last revised: May 17, 2016

Suggested Citation

Brav, Alon and Jiang, Wei and Ma, Song and Tian, Xuan, How Does Hedge Fund Activism Reshape Corporate Innovation? (May 16, 2016). Available at SSRN: http://ssrn.com/abstract=2409404 or http://dx.doi.org/10.2139/ssrn.2409404

Contact Information

Alon Brav
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)
Wei Jiang
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

Song Ma (Contact Author)
Yale School of Management ( email )
165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States
HOME PAGE: http://faculty.som.yale.edu/songma/

Xuan Tian
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

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