Hedge Fund Activism, Corporate Governance, and Firm Performance

62 Pages Posted: 5 Apr 2007 Last revised: 9 Nov 2018

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Frank Partnoy

University of California, Berkeley - School of Law

Date Written: May 1, 2008

Abstract

Using a large hand-collected dataset from 2001 to 2006, we find that activist hedge funds in the U.S. propose strategic, operational, and financial remedies and attain success or partial success in two thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.

Keywords: Hedge Fund, Activism, Governance

JEL Classification: G14, G23, G3

Suggested Citation

Brav, Alon and Jiang, Wei and Thomas, Randall S. and Partnoy, Frank, Hedge Fund Activism, Corporate Governance, and Firm Performance (May 1, 2008). Journal of Finance, Vol. 63, p. 1729, 2008; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 139/2006; Vanderbilt Law and Economics Research Paper No. 07-28; FDIC Center for Financial Research Working Paper No. 2008-06. Available at SSRN: https://ssrn.com/abstract=948907

Alon Brav (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
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European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Frank Partnoy

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

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