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The product market effects of hedge fund activism

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  • Aslan, Hadiye
  • Kumar, Praveen

Abstract

We examine the product market spillover effects of hedge fund activism (HFA) on the industry rivals of target firms. HFA has negative real and stockholder wealth effects on the average rival firm. The effects on rivals' product market performance is commensurate with post-activism improvements in target's productivity, cost and capital allocation efficiency, and product differentiation. Financially constrained rivals accommodate these improvements but those facing high intervention threat respond effectively to them. The spillover effects are strengthened in less concentrated and low entry barrier industries. The results are robust to the alternative hypothesis of strategic target selection by hedge funds.

Suggested Citation

  • Aslan, Hadiye & Kumar, Praveen, 2016. "The product market effects of hedge fund activism," Journal of Financial Economics, Elsevier, vol. 119(1), pages 226-248.
    • Handle: RePEc:eee:jfinec:v:119:y:2016:i:1:p:226-248
    DOI: 10.1016/j.jfineco.2015.08.016
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    More about this item

    Keywords

    Hedge fund activism; Product markets; Spillover effects; Market shares; Markups;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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