Working Paper: NBER ID: w21227
Authors: Lucian A. Bebchuk; Alon Brav; Wei Jiang
Abstract: We test the empirical validity of a claim that has been playing a central role in debates on corporate governance—the claim that interventions by activist hedge funds have a negative effect on the long-term shareholder value and corporate performance. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data. \n\nWe find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention’s long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Our findings have significant implications for ongoing policy debates.
Keywords: Hedge Fund Activism; Corporate Governance; Shareholder Value
JEL Codes: G12; G23; G32; G34; G35; G38; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Activist hedge fund interventions (G34) | long-term performance (L25) |
| Activist hedge fund interventions (G34) | short-term performance gains (D29) |
| Activist hedge fund interventions (G34) | long-term stock underperformance (G41) |
| Activist exits (Y60) | negative long-term returns (G12) |
| Activist hedge fund interventions (G34) | performance relative to industry peers (L25) |