Power Tussle: Hedge Fund Activists and Short Sellers

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. The presence of large short sellers is associated with a 22.6% increase in the probability of becoming an activist target. Such presence also increases campaigns' success probability and profitability. Importantly, activists employ fewer hostile tactics, launch shorter campaigns, and achieve better post-activism corporate outcomes, consistent with firms becoming more receptive to activists' demands after facing pressure from short sellers. Hedge fund activism is also associated with a reduction in disclosed short positions.

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

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