Hedge Fund Activism and Corporate M&A Decisions

Abstract

This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds improve target firms’ M&A decisions by influencing their governance practices. We show that our results are unlikely driven by selection bias. Overall, activist hedge funds play an important role in the market for corporate control by increasing the efficiency of target firms’ M&A activities through interventions.

Keywords: Hedge Fund Activism, M&A Performance, Schedule 13D Filings, Event Study, Abnormal Stock Returns, Selection Bias

JEL Classification: G23, G32, G34