The Long-Term Effects of Hedge Fund Activism

85 Pages Posted: 8 Jun 2015 Last revised: 24 Jul 2022

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Alon Brav

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

Wei Jiang

Emory University Goizueta Business School; ECGI; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: June 2015

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. We 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.

Suggested Citation

Bebchuk, Lucian A. and Brav, Alon and Jiang, Wei, The Long-Term Effects of Hedge Fund Activism (June 2015). NBER Working Paper No. w21227, Available at SSRN: https://ssrn.com/abstract=2615633

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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Alon Brav

Duke University - Fuqua School of Business ( email )

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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

Emory University Goizueta Business School ( email )

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ECGI ( email )

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

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