[Research Seminar 2018.10.31]Hedge Fund Activism and Corporate M&A Decisions

Abstract:

This paper shows that hedge fund activism leads to lower M&A activities, lower takeover premiums, more favorable market reactions to M&A announcements, and better post-M&A stock and operating performance using Schedule 13D filings by hedge funds and M&A announcements made by US companies from 1993 to 2015. We explore various governance variables (i.e., board appointment, CEO turnover, board independence, and board structure) as possible mechanisms through which hedge fund activism affects M&A performance. Overall, our results suggest that hedge fund activism increases shareholder wealth by forcing corporate M&A to be more efficient and disciplined (e.g., fewer but better acquisitions).

JEL classification: G23, G32, G34

Keywords: Hedge fund activism, M&A performance, Schedule 13D filings, Event study, Abnormal stock returns, Corporate governance, Selection bias