TY - JOUR AU - Brav, Alon AU - Jiang, Wei AU - Ma, Song AU - Tian, Xuan TI - How Does Hedge Fund Activism Reshape Corporate Innovation? JF - National Bureau of Economic Research Working Paper Series VL - No. 22273 PY - 2016 Y2 - May 2016 DO - 10.3386/w22273 UR - http://www.nber.org/papers/w22273 L1 - http://www.nber.org/papers/w22273.pdf N1 - Author contact info: Alon Brav Fuqua School of Business Duke University One Towerview Drive Durham, NC 27708 Tel: 919/660-2908 Fax: 919/684-2818 E-Mail: brav@duke.edu Wei Jiang Graduate School of Business Columbia University 3022 Broadway, Uris Hall 803 New York, NY 10027 Tel: 212/854-9002 E-Mail: wj2006@columbia.edu Song Ma Yale School of Management 165 Whitney Avenue New Haven, CT 06511 Tel: (203) 436-4687 E-Mail: song.ma@yale.edu Xuan Tian PBC School of Finance Tsinghua University Beijing, China Tel: 812-8553420 Fax: 812-8555875 E-Mail: tianx@pbcsf.tsinghua.edu.cn AB - 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. ER -