Hedge Fund Activism, Firm Valuation and Stock Returns

95 Pages Posted: 24 Nov 2015 Last revised: 20 Dec 2018

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; IAST - Fondation Jean-Jacques Laffont - TSE

Ye Wang

Shanghai University of Finance and Economics

Date Written: December 19, 2018

Abstract

This paper studies the association between hedge fund activism and firm value, using matching procedures to mitigate the selection effects of which firms are chosen as targets by activist hedge funds. We find that targeted firms improve less in value (Q) subsequent to the start of activism than ex-ante similarly poorly performing control firms that are not subject to activist campaigns. Further, long-term abnormal stock returns of both target and control firms are likewise positive and significant. However, activist hedge funds have strong stock selection skills as well as strong trading skills that allow them to outperform.

Keywords: Hedge fund activism, corporate governance, long-term firm value, selection effect, matched sample, limited commitment, stakeholder relationships

JEL Classification: G12, G23, G34

Suggested Citation

Cremers, K. J. Martijn and Giambona, Erasmo and Sepe, Simone M. and Wang, Ye, Hedge Fund Activism, Firm Valuation and Stock Returns (December 19, 2018). Available at SSRN: https://ssrn.com/abstract=2693231 or http://dx.doi.org/10.2139/ssrn.2693231

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 120-D
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Simone M. Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

IAST - Fondation Jean-Jacques Laffont - TSE ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042
France

Ye Wang

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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