The Product Market Effects of Hedge Fund Activism

54 Pages Posted: 26 Oct 2015

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Praveen Kumar

University of Houston - Department of Finance

Date Written: 2015

Abstract

We examine the product market spillover effects of hedge fund activism (HFA) on the industry rivals of target firms. HFA has negative real and stockholder wealth effects on the average rival firm. The effects on rivals' product market performance is commensurate with post-activism improvements in target’s productivity, cost and capital allocation efficiency, and product differentiation. Financially constrained rivals accommodate these improvements but those facing high intervention threat respond effectively to them. The spillover effects are strengthened in less concentrated and low entry barrier industries. The results are robust to the alternative hypothesis of strategic target selection by hedge funds.

Keywords: Hedge fund activism; Product markets; Spillover effects; Market shares; Markups

JEL Classification: G34, L13

Suggested Citation

Aslan, Hadiye and Kumar, Praveen, The Product Market Effects of Hedge Fund Activism (2015). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2680167

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Praveen Kumar

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

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