Do Hedge Fund Activists Affect Firms Differently than Other Activists? Evidence from the Long-term Effects of Corporate Divestitures*
51 Pages Posted: 4 Jan 2019 Last revised: 29 Apr 2020
Date Written: October 10, 2019
Using hand-collected data on activist-initiated divestitures, we compare the long- term effects of hedge fund activists on their targets with that of other shareholder activists. We show that the distinguishing features of hedge funds are associated with substantial improvements in target-firm profitability after selloffs involving large asset reductions. In addition, following the divestiture completion, hedge fund activists are not more likely to initiate the sale of their target firms, nor do they reduce their holdings faster than other activists. Our results suggest that among activists, hedge funds can be more efficient “shepherds” creating long-term value, rather than “wolves” seeking short-term profits.
Keywords: Shareholder Activism; Hedge Funds; Divestitures; Spinoffs
JEL Classification: G23; G34
Suggested Citation: Suggested Citation