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THE LONG-TERM EFFECTS OF HEDGE FUND ACTIVISM

Columbia law review, 2015-06, Vol.115 (5), p.1085-1155 [Peer Reviewed Journal]

Copyright © 2015 Directors of The Columbia Law Review Association, Inc. ;Copyright Columbia Law Review Association, Inc. Jun 2015 ;ISSN: 0010-1958 ;EISSN: 1945-2268

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Title:
THE LONG-TERM EFFECTS OF HEDGE FUND ACTIVISM
Author: Bebchuk, Lucian A. ; Brav, Alon ; Jiang, Wei
Subjects: Activism ; Activists ; Balance of power ; Business management ; Business structures ; COMPANIES ; Corporate governance ; Corporations ; Costs ; Debates ; Dues and fees ; Economic aspects ; Economics ; ELECTIONS ; Empirical evidence ; Enterprises ; EVIDENCE ; Finance ; Financial management ; Fund management ; Governance ; Hedge funds ; Hedging ; Impact analysis ; Institutional investments ; Intervention ; Investment returns ; INVESTMENTS ; Investors ; Law and legislation ; Linear regression ; Memoranda ; Prices ; Regression coefficients ; Shareholder activism ; Shareholders ; Shareholders rights ; SHARES AND SHAREHOLDERS ; Statistical significance ; Stockholders ; Stocks ; Studies
Is Part Of: Columbia law review, 2015-06, Vol.115 (5), p.1085-1155
Description: 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 adivist hedge funds have a detrimental effect on the long-term interests of companies and their shareholders. We subject this claim to a comprehensive empirical investigation, examining a longfive-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.Policymakers and institutional investors should not accept the validity of the assertions that activist interventions are costly to firms and their shareholders in the long term; such claims do not provide a valid basis for limiting the rights, powers, and involvement of shareholders.
Publisher: New York: Columbia Law School
Language: English
Identifier: ISSN: 0010-1958
EISSN: 1945-2268
Source: Alma/SFX Local Collection
ProQuest Central

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THE LONG-TERM EFFECTS OF HEDGE FUND ACTIVISM

Copyright © 2015 Directors of The Columbia Law Review Association, Inc. ;Copyright Columbia Law Review Association, Inc. Jun 2015 ;ISSN: 0010-1958 ;EISSN: 1945-2268

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