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

University of Washington - Michael G. Foster School of Business

David F. Larcker

Stanford University - Graduate School of Business

Charles McClure

University of Chicago Booth School of Business

Date Written: December 31, 2018

Abstract

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)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

David F. Larcker

Stanford University - Graduate School of Business ( email )

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

Charles McClure

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

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