Do Activist Directors Add Value?

Abstract

Since the financial crisis and with the help of large passive investors, activist hedge funds, who initially served as a catalyst in resolving agency conflict, have increased influence beyond their concentrated stock holdings advocating for board representation. We study the performance of companies with activist directors using a hand-collected dataset and attempt to fill a void in the emerging study of corporate activism. Our data covers a complete list of activist hedge fund directors, their tenure, and operating performance and returns associated with their board service. Additionally, our findings provide context for the ongoing policy debate on the attributes of activism and corporate governance. We find scant statistically significant evidence that activist hedge funds that nominate directors by winning a proxy contest or by consulting with management generate long-term value for shareholders in the form of superior operating performance and outsized monthly returns during their board tenure.

Keywords: Hedge Fund Activism, Activist Directors, Corporate Governance

JEL Classification: G23, G30, G40