The Returns to Hedge Fund Activism

Alon Brav
Duke University
Wei Jiang
Columbia University
Frank Partnoy
University of San Diego
Randall Thomas
Vanderbilt University

Abstract
Hedge fund activism is a new form of arbitrage. Using a large hand-collected data set from
2001 to 2006 we fi nd that activist hedge funds in the U.S. propose strategic, operational,
and fi nancial remedies and attain success or partial success in two-thirds of the cases. The
abnormal stock return upon announcement of activism is approximately seven percent,
with no reversal during the subsequent year. Target fi rms experience increases in payout,
operating performance, and higher CEO turnover after activism. We also fi nd large positive
abnormal return to the self-reported hedge fund activists during our sample period. The
abnormal return signifi cantly exceeds the returns to all hedge funds, the returns to equity-
oriented hedge funds and is robust to alternative risk adjustments and selection biases.