The Value of Activism: A Hedge Fund Investor's Perspective
40 Pages Posted: 12 May 2018 Last revised: 6 Feb 2023
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: Suggested Citation