The Long-Term Effects of Hedge Fund Activism / Lucian A. Bebchuk, Alon Brav, Wei Jiang.

Format:

Book

Author/Creator:

Bebchuk, Lucian A.

Contributor:

National Bureau of Economic Research.

Brav, Alon.

Jiang, Wei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21227.

NBER working paper series no. w21227

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

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.

Notes:

Print version record

June 2015.