The Returns to Hedge Fund Activism: An International Study

This paper examines almost 1800 cases of shareholder activism across three regions, Asia, Europe and North America. We measure the block disclosure returns to activist announcements and to subsequent outcomes of the engagement, including changes to payout, boards, takeovers and other corporate restructurings. We compare the profitability of engagements with and without outcomes. There are large abnormal returns to shareholder activism at the block disclosure announcement of between 4.5 and 7.5 percent across the three continents. There are also large additional abnormal returns to the disclosure of outcomes from engagements, totaling 9.3 percent in Europe, and 6.6 percent in North America. The returns for Asia are much lower at 3 percent. Asia also has the lowest number of outcomes per engagement, with payout being the most common type. During the financial crisis activist returns declined significantly, primarily as a result of the lack of outcomes, particularly for takeovers. Overall, the paper shows that abnormal returns over the entire period of the engagement are significantly higher for engagements with outcomes compared with those without outcomes. These results suggest that the profitability of activism is based primarily on engagement with the target firm to achieve change rather than on “stock picking.

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