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Alternative Market Briefing

Other Voices: Does hedge-fund activism really increase shareholder value?

Thursday, October 18, 2018

By: Cydney Posner, Cooley, LLP

The public debate about hedge-fund activism has long been informed by academic literature that found increases in shareholder value and operating performance after activist interventions. But do hedge-fund activists actually do any long-term good for the companies that they target? Long-Term Economic Consequences of Hedge Fund Activist Interventions, from the Rock Center for Corporate Governance, examines just that question. The answer? Not so much. But not so much harm either.

Proponents of hedge-fund activism contend that activists provide necessary financial discipline, leading to improved performance. Opponents contend that hedge-fund activists impose a short-term view, impairing the company, its employees and perhaps also its community. To examine these contentions, the authors looked at a sample of 1,964 activist targets from 1994 to 2011, measuring the short-term (the 21-day window surrounding the activist intervention) and long-term (from one month before the intervention through the one and two years thereafter) impact of hedge-fund activist interventions.

The authors found that, consistent with other studies, both short-term and long-term returns that were equal-weighted were significantly positive-5.4% for short-term returns and 6.8% for one-year and 5.9% for two-year returns. However, that picture grew more refined when the returns w......................

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