Working Paper: NBER ID: w17517
Authors: Alon Brav; Wei Jiang; Hyunseob Kim
Abstract: This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency in the three years after an activist intervention, and the improvements are most pronounced in those interventions specifically targeting the firm’s business strategy. We also find that plants sold post-intervention exhibit a significant improvement in productivity under new ownership, consistent with the view that efficient capital redeployment is an important channel via which activists create value. We further find that employees of target firms experience a reduction in work hours and stagnation in wages despite an increase in labor productivity. Additional tests refute alternative explanations that attribute the improvement to mean reversion, management’s voluntary reforms, industry consolidation shocks, or hedge funds’ stock picking abilities. The overall evidence is consistent with hedge fund intervention having a real and long-term effect on the fundamental values of target firms.
Keywords: hedge fund activism; corporate governance; productivity; capital reallocation; labor outcomes
JEL Codes: G23; G3; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hedge fund activism (G34) | Plant productivity (O47) |
| Hedge fund activism targeting operational issues (G34) | Plant productivity (O47) |
| Hedge fund activism facilitates efficient capital redeployment (G34) | Plant productivity improvements under new ownership (Q15) |
| Hedge fund activism (G34) | Employee work hours (J22) |
| Hedge fund activism (G34) | Wages (J31) |