Long-Term Economic Consequences of Hedge Fund Activist Interventions

58 Pages Posted: 3 Oct 2018 Last revised: 7 Jun 2019

See all articles by Ed deHaan

Ed deHaan

Stanford Graduate School of Business

David F. Larcker

Stanford Graduate School of Business; Stanford University - Hoover Institution; European Corporate Governance Institute (ECGI)

Charles McClure

University of Chicago Booth School of Business

Date Written: December 31, 2018


We examine the long-term effects of interventions by activist hedge funds. Research documents positive equal-weighted long-term returns and operating performance improvements following activist interventions, and typically conclude that activism is beneficial. We extend the literature in two ways. First, we find that equal-weighted long-term returns are driven by the smallest 20% of firms, with an average market value of $22 million. The larger 80% of firms experience insignificant negative long-term returns. On a value-weighted basis, which likely best gauges the effects on shareholder wealth and the economy, we find that pre- to post-activism long-term returns insignificantly differ from zero. For operating performance, we find that prior results are a manifestation of abnormal trends in pre-activism performance. Using an appropriately matched sample, we find no evidence of abnormal post-activism performance improvements. Overall, our results do not strongly support the hypothesis that activist interventions drive long-term benefits for the typical shareholder, nor do we find evidence of shareholder harm.

Keywords: Hedge Fund Activist Interventions, Activist Interventions, Activist Hedge Funds, shareholder wealth, pre-activism performance, shareholders, Government Policy and Regulation, corporate governance

JEL Classification: G34; G38; G14; M41; M48

Suggested Citation

deHaan, Ed and Larcker, David F. and McClure, Charles, Long-Term Economic Consequences of Hedge Fund Activist Interventions (December 31, 2018). Rock Center for Corporate Governance at Stanford University Working Paper No. 236, Stanford University Graduate School of Business Research Paper No. 18-47, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 577/2018, Review of Accounting Studies,, Long-term economic consequences of hedge fund activist interventions June 2019, Volume 24, Issue 2, pp 536–569 , Available at SSRN: https://ssrn.com/abstract=3260095 or http://dx.doi.org/10.2139/ssrn.3260095

Ed DeHaan (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, 94305
United States

David F. Larcker

Stanford Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

European Corporate Governance Institute (ECGI) ( email )

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

Charles McClure

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

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