The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes

56 Pages Posted: 15 Mar 2012 Last revised: 21 Jan 2015

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Hyunseob Kim

Federal Reserve Bank of Chicago

Multiple version iconThere are 3 versions of this paper

Date Written: January 19, 2015

Abstract

This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency in the three years after an activist intervention, and the improvements are most pronounced in those interventions specifically targeting the firm’s business strategy. We also find that plants sold post-intervention exhibit a significant improvement in productivity under new ownership, consistent with the view that efficient capital redeployment is an important channel via which activists create value. We further find that employees of target firms experience a reduction in work hours and stagnation in wages despite an increase in labor productivity. Additional tests refute alternative explanations that attribute the improvement to mean reversion, management’s voluntary reforms, industry consolidation shocks, or hedge funds’ stock picking abilities. The overall evidence is consistent with hedge fund intervention having a real and long-term effect on the fundamental values of target firms.

Keywords: Hedge fund activism, Governance, Productivity, Capital Reallocation, Labor Outcomes

JEL Classification: G12, G23, G34

Suggested Citation

Brav, Alon and Jiang, Wei and Kim, Hyunseob, The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes (January 19, 2015). Available at SSRN: https://ssrn.com/abstract=2022904 or http://dx.doi.org/10.2139/ssrn.2022904

Alon Brav (Contact Author)

Duke University - Fuqua School of Business ( email )

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Wei Jiang

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Hyunseob Kim

Federal Reserve Bank of Chicago ( email )

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