Shepherds in Wolves’ Clothing? Hedge Fund Activism Using Corporate Divestitures
41 Pages Posted: 4 Jan 2019 Last revised: 18 Nov 2019
Date Written: October 10, 2019
Using hand-collected data on activist-initiated divestitures, we compare the efficiency of hedge fund activists and other shareholder activists. We show that hedge funds are associated with substantial improvements in firm profitability, in particular, through selloffs involving large asset reductions. We do not find that hedge fund activists target firms that are bound to divest, nor do we find that hedge fund activists are more likely to initiate the sale of their target firms. Our results suggest that, among activists, hedge funds are more efficient “shepherds” creating long-term value, rather than the “wolves” seeking short-term profits.
Keywords: Hedge Fund Activism, Divestitures; M&As
JEL Classification: G23; G34
Suggested Citation: Suggested Citation