In this paper I explore the relationship between the rise of hedge fund activism and firm outcomes, using a study design that explicitly takes into account how activists pick their targets. Contrary to much prior work, I find no evidence that activism is associated with increased firm operating performance or significant long-term returns once comparing to firms based on their similarity to the targets. However, activism does increase firm payouts to shareholders and decreases investment, consistent with the argument of many critics of activism. I also find that firm-level employment declines significantly following a targeting event, and that the subset of firms that experience an increase in operating performance also engage in higher levels of tax avoidance. The deregulation of proxy access rules, wholesale de-staggering of corporate boards, and the rise in importance of proxy advisory firms who frequently recommend voting for activist proposals have made firms more susceptible to aggressive activism over the past three decades. The results in this paper, coupled with the rhetorical shift in focus from short-term profits to sustainable growth by large institutional investors, suggest a re-framing of the public debate over the benefits of shareholder activism.
A longstanding debate over the impact of state antitakeover provisions has emerged among scholars in law and finance. Corporate law practitioners and researchers argue that the second generation of antitakeover statutes were made redundant by the affirmation of rights plans, while empirical scholars have found wide-ranging impacts from their adoption when used as an exogenous shocks to managerial entrenchment. This paper subjects the standard approach used in the empirical literature to a series of straightforward sensitivity analyses, consistent with the present best practice in panel data analysis. Contrary to the majority of published research, there is scant evidence for a consistent and reliable impact of antitakeover statute adoption on common firm outcome measures. These findings are consistent with the legal argument that takeover statutes provide little additional takeover deterrence in the presence of a ``shadow pill.''
Difference-in-differences analysis with staggered treatment timing is frequently used to assess the impact of policy changes on corporate outcomes in academic research. However, recent advances in econometric theory show that such designs are likely …
We show that using modern estimation techniques (with penalized regression and cross-validation to select comparable peer firms) for event studies can both reduce expert witness discretion and produce more accurate stock return predictions.
This paper shows that, both conceptually and empirically, the exclusion of dual-class shares by index providers is unlikely to act as a deterrence mechanism.
This paper shows that the type of event studies commonly used in securities litigation fail during periods of market volatility, and proposes alternatives more suitable during such periods.