Glass Half Full or Half Empty? Activists, Short Sellers, and Disagreement

Abstract

We study events in which activist hedge funds and short sellers target the same stock, using unique European data on activism and mandatory disclosures of large short positions. We find that the presence of large short sellers positively influences activists' targeting decisions (especially when investor disagreement is high) and their success and profitability. Hedge fund activism is associated with a reduction in short interest but it does not affect the likelihood of a large short position. Our results suggest that corporate managers become more receptive to activists' demands after they face pressure from large short sellers.

Keywords: Hedge fund activism, short selling, short position disclosure, disagreement, equity lending

JEL Classification: G12, G14, G15, G2, G34