The Value of Activism: A Hedge Fund Investor's Perspective

40 Pages Posted: 12 May 2018 Last revised: 6 Feb 2023

See all articles by Chengdong Yin

Chengdong Yin

Renmin University of China - School of Finance

Caroline Zhu

Seattle Pacific University

Date Written: February 3, 2023

Abstract

This paper examines the value of hedge fund activism from the perspective of activist hedge funds’ investors. Different from previous studies, we compare the returns to an activist hedge fund’s holdings of intervention targets against its own non-target holdings. This enables us to evaluate the return to activism more precisely by controlling for the fund manager’s general investment skills. On average, an activist fund’s intervention targets do not perform differently from its non-target holdings. The targets do outperform, however, in the first month of intervention, especially if the fund has prior intervention experience or is familiar with the target industries. The performance gap between activism targets and the funds’ non-target holdings appears to have narrowed after the 2008 global finance crisis, consistent with the increasing effectiveness of corporate governance via passive holdings.

Keywords: hedge fund, shareholder activism, portfolio analysis

JEL Classification: G23, G11, G14

Suggested Citation

Yin, Chengdong and Zhu, Caroline, The Value of Activism: A Hedge Fund Investor's Perspective (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=3158826 or http://dx.doi.org/10.2139/ssrn.3158826

Chengdong Yin (Contact Author)

Renmin University of China - School of Finance ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

Caroline Zhu

Seattle Pacific University ( email )

3307 Third Avenue West
Seattle, WA 98119-1997
United States

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