Shepherds in Wolves’ Clothing? Hedge Fund Activism Using Corporate Divestitures

41 Pages Posted: 4 Jan 2019 Last revised: 18 Nov 2019

See all articles by Jie (Michael) Guo

Jie (Michael) Guo

Durham Business School

Joshua Shemesh

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Vinay Utham

Brunel University London

George Jiaguo Wang

Lancaster University Management School; New York University - Stern School of Business

Date Written: October 10, 2019

Abstract

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

Guo, Jie Michael and Shemesh, Joshua and Utham, Vinay and Wang, George Jiaguo, Shepherds in Wolves’ Clothing? Hedge Fund Activism Using Corporate Divestitures (October 10, 2019). Available at SSRN: https://ssrn.com/abstract=3303342 or http://dx.doi.org/10.2139/ssrn.3303342

Jie Michael Guo

Durham Business School ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Joshua Shemesh

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Vinay Utham

Brunel University London ( email )

Kingston Lane
Eastern Gateway Building
Uxbridge, Middlesex UB8 3PH
United Kingdom

George Jiaguo Wang (Contact Author)

Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, Lancashire LA1 4YX
United Kingdom
+44 1524 592 577 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/lums/people/george-wang

New York University - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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