Graduate School of Business
3022 Broadway, Uris Hall 803
New York, NY 10027
NBER Program Affiliations:
NBER Affiliation: Research Associate
Information about this author at RePEc
NBER Working Papers and Publications
|May 2016||How Does Hedge Fund Activism Reshape Corporate Innovation?|
with Alon Brav, Song Ma, Xuan Tian: w22273
This paper studies how hedge fund activism reshapes corporate innovation. Firms targeted by hedge fund activists experience an improvement in innovation efficiency during the five-year period following the intervention. Despite a tightening in R&D expenditures, target firms experience increases in innovation output, measured by both patent counts and citations, with stronger effects seen among firms with more diversified innovation portfolios. We also find that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation. Finally, additional tests refute alternative explanations attributing the improvement to mean reversion, sample attrition, management’s voluntary reforms, or activists’ stock-picking abilities.
|June 2015||The Long-Term Effects of Hedge Fund Activism|
with Lucian A. Bebchuk, Alon Brav: w21227
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 negative effect on the long-term shareholder value and corporate performance. 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...
|November 2011||Feedback Effects and the Limits to Arbitrage|
with Alex Edmans, Itay Goldstein: w17582
This paper identifies a limit to arbitrage that arises from the fact that a firm's fundamental value is endogenous to the act of exploiting the arbitrage. Trading on private information reveals this information to managers and helps them improve their real decisions, in turn enhancing fundamental value. While this increases the profitability of a long position, it reduces the profitability of a short position -- selling on negative information reveals that firm prospects are poor, causing the manager to cancel investment. Optimal abandonment increases firm value and may cause the speculator to realize a loss on her initial sale. Thus, investors may strategically refrain from trading on negative information, and so bad news is incorporated more slowly into prices than good news. The effect ...
|October 2011||The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes|
with Alon Brav, Hyunseob Kim: w17517
This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency in the three years after an activist intervention, and the improvements are most pronounced in those interventions specifically targeting the firm’s business strategy. We also find that plants sold post-intervention exhibit a significant improvement in productivity under new ownership, consistent with the view that efficient capital redeployment is an important channel via which activists create value. We further find that employees of target firms experience a reduction in work hours and stagnation in wages despite an increase in labor productivity. Additional tests refute alte...
Published: Alon Brav & Wei Jiang & Hyunseob Kim, 2015. "The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes," Review of Financial Studies, vol 28(10), pages 2723-2769.