Hedge Fund Activism and Long-Term Firm Value

66 Pages Posted: 19 Nov 2015 Last revised: 29 May 2020

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

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; University of Toulouse 1 - Université Toulouse 1 Capitole; Toulouse School of Economics; European Corporate Governance Institute (ECGI); American College of Governance Counsel

Ye Wang

School of Banking and Finance, University of International Business and Economics

Date Written: May 28, 2020

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 and Long-Term Firm Value (May 28, 2020). 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

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Erasmo Giambona

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

721 University Avenue
RM 640
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

University of Toulouse 1 - Université Toulouse 1 Capitole ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Toulouse School of Economics ( email )

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

American College of Governance Counsel ( email )

555 8th Avenue, Suite 1902
New York, NY 10018
United States

Ye Wang

School of Banking and Finance, University of International Business and Economics ( email )

Beijing
China

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