NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Xuan Tian

BU 370 Finance Department
Kelley School of Business
Indiana University
1309 E. Tenth Street
Bloomington, IN 47405
Tel: 812-8553420
Fax: 812-8555875

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NBER Working Papers and Publications

May 2016How Does Hedge Fund Activism Reshape Corporate Innovation?
with Alon Brav, Wei Jiang, Song Ma: 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.
 
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