Hedge Fund Activism: An Empirical Analysis of its Impact on Shareholder Value

Abstract

As the landscape of activism has shifted away from institutional investors towards hedge funds, activism has become a widely covered and debated topic in the press. Although there have been a few empirical studies of the impact of hedge fund activism on shareholder value, limitations in the sample periods and methodologies of these studies motivate further research in this area. Using a sample of activist campaigns between 2007 and 2011, I confirm the results of prior literature in finding statistically significant mean cumulative abnormal return of 6.5-7.0% in a short [-15 days, 15 days] event window around the event date. While there is no significant variation in cumulative abnormal return during the short window based on the objectives of the activist, targets see positive, significant partial abnormal returns over a [-1 month, 18 months] event window if the hedge fund initiates activism with a corporate governance-related objective. I believe that this is because activists are most likely to succeed in making value-adding changes by first changing the corporate governance profile of the target, enabling greater oversight of management. I also find targets that remain independent see a mean cumulative abnormal return that is positive and statistically significant over the [-1 month, 18 months] event window, albeit lower than the mean abnormal return of targets that are acquired. Overall, I find hedge fund activism has a positive impact on long-term shareholder value.