Activism and Empire Building



This paper studies the relationship between hedge fund activism and empire building. We find that acquirers with poorly performing acquisitions and serial acquirers are substantially more likely to become targets of activism. Once targeted, these firms conduct fewer acquisitions but these acquisitions obtain higher short-run and long-run returns. The primary channel through which activists affect the acquisition strategy of their targets is the more disciplined capital policies resulting from their campaigns. Taken together, our results suggest that activists perform an important governance role in the market for corporate control by disciplining inefficient acquirers. Hence, one of the sources of value creation in hedge fund activism is lower value destruction associated with empire building.