Power Grab: Activists, Short Sellers, and Disagreement

Abstract

We study events in which activist hedge funds and short sellers target the same stock, using European data on activism and mandatory disclosures of large short positions. The likelihood of activist targeting and the probability of a successful campaign are higher in the presence of large short sellers, with an even larger effect when investor disagreement is high. However, hedge fund activism does not affect the likelihood of a large short position. Using a calendar-time portfolio approach, we show that hedge fund activism generates higher abnormal returns when large short sellers are present, especially when activists achieve their stated goals.

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

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