The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes

57 Pages Posted: 15 Oct 2011

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business

Wei Jiang

Columbia Business School - Finance and Economics

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: October 2011

Abstract

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.

Suggested Citation

Brav, Alon and Jiang, Wei and Kim, Hyunseob, The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes (October 2011). NBER Working Paper No. w17517. Available at SSRN: https://ssrn.com/abstract=1944424

Alon Brav (Contact Author)

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)

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
46
Abstract Views
1,815
PlumX Metrics