Working Paper: CEPR ID: DP10507
Authors: Marco Becht; Julian Franks; Jeremy Grant; Hannes F. Wagner
Abstract: This paper provides evidence that returns to hedge fund activism are driven by engagement outcomes. We use a sample of 1,740 activist engagements from 23 countries to estimate performance of activism across North America, Europe and Asia. Striking differences emerge across countries in outcomes of the engagements. It is these differences that explain the variation in performance of activism. Although there is evidence that activists put companies into play, frequently those takeovers are preceded by significant and profitable governance changes. While the U.S. model of activism has been copied by foreign activists, non-U.S. activists outperform U.S. activists in their domestic markets.
Keywords: Active ownership; Hedge funds; Institutional investors; Shareholder activism
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Activist engagements (O17) | Achieving at least one positive outcome (C52) |
| Achieving at least one positive outcome (C52) | Abnormal returns (G14) |
| Engagements with multiple outcomes (C35) | Higher returns (G19) |
| Engagements with single outcome (C20) | Lower returns (G19) |
| Engagements with outcomes (O36) | Positive annualized abnormal returns (G17) |
| Engagements without outcomes (Y40) | Lower annualized abnormal returns (G17) |
| Domestic activists (D72) | Superior performance in home markets (L19) |
| Geographical context (R12) | Success of activist engagements (O36) |