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The long-term effects of hedge fund activism

Publication ,  Journal Article
Bebchuk, LA; Brav, A; Jiang, W
Published in: Columbia Law Review
June 1, 2015

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 detrimental effect on the long-term interests of companies and their shareholders. 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. 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.

Duke Scholars

Published In

Columbia Law Review

ISSN

0010-1958

Publication Date

June 1, 2015

Volume

115

Issue

5

Start / End Page

1085 / 1156

Related Subject Headings

  • Law
  • 4807 Public law
  • 4804 Law in context
  • 4803 International and comparative law
  • 1801 Law
 

Citation

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Bebchuk, L. A., Brav, A., & Jiang, W. (2015). The long-term effects of hedge fund activism. Columbia Law Review, 115(5), 1085–1156.
Bebchuk, L. A., A. Brav, and W. Jiang. “The long-term effects of hedge fund activism.” Columbia Law Review 115, no. 5 (June 1, 2015): 1085–1156.
Bebchuk LA, Brav A, Jiang W. The long-term effects of hedge fund activism. Columbia Law Review. 2015 Jun 1;115(5):1085–156.
Bebchuk, L. A., et al. “The long-term effects of hedge fund activism.” Columbia Law Review, vol. 115, no. 5, June 2015, pp. 1085–156.
Bebchuk LA, Brav A, Jiang W. The long-term effects of hedge fund activism. Columbia Law Review. 2015 Jun 1;115(5):1085–1156.

Published In

Columbia Law Review

ISSN

0010-1958

Publication Date

June 1, 2015

Volume

115

Issue

5

Start / End Page

1085 / 1156

Related Subject Headings

  • Law
  • 4807 Public law
  • 4804 Law in context
  • 4803 International and comparative law
  • 1801 Law