Does Hedge Fund Managers’ Industry Experience Matter for Hedge Fund Activism?

Abstract

We study whether managers’ industry experience matters for hedge fund activism. We find that hedge fund managers with previous executive and outside director experience in target industries hold target shares longer and are more likely to serve as directors on target boards than those without such experience. Moreover, the targets of hedge funds whose managers have industry experience realize higher acquisition announcement returns and better operating performance, and show increases in payouts and reductions in CEO compensation and investment after acquisitions. The results suggest that managers’ industry expertise is an important source of value creation in hedge fund activism.

Keywords: hedge fund activism, hedge fund manager, industry experience, acquisition, target, announcement return, target policy

JEL Classification: G14, G23, G30, G34