Hedge Fund Activism, Firm Valuation and Stock Returns
95 Pages Posted: 24 Nov 2015 Last revised: 20 Dec 2018
Date Written: December 19, 2018
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: Suggested Citation