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Hedge Fund Activism and Corporate M&A Decisions

Author

Listed:
  • Szu-Yin (Jennifer) Wu

    (School of Management, University at Buffalo, The State University of New York (SUNY), Buffalo, New York 14260)

  • Kee H. Chung

    (School of Management, University at Buffalo, The State University of New York (SUNY), Buffalo, New York 14260; SKK Business School, Sungkyunkwan University, Seoul 03063, Republic of Korea)

Abstract

This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds improve target firms’ M&A decisions by influencing their governance practices. We show that our results are unlikely driven by selection bias. Overall, activist hedge funds play an important role in the market for corporate control by increasing the efficiency of target firms’ M&A activities through interventions.

Suggested Citation

  • Szu-Yin (Jennifer) Wu & Kee H. Chung, 2022. "Hedge Fund Activism and Corporate M&A Decisions," Management Science, INFORMS, vol. 68(2), pages 1378-1403, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1378-1403
    DOI: 10.1287/mnsc.2020.3934
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    References listed on IDEAS

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    Cited by:

    1. Xiao, Fenglong & Shen, Yinjie, 2024. "Wolves at the door to the unknown: Innovation search and hedge fund activism," Research Policy, Elsevier, vol. 53(2).
    2. Huang, Qiongyu & Zhang, Ruiyao & Li, Siyao & Li, Jingjing & Yao, Qiong, 2024. "The role of financial advisorʼs industry expertise in M&A quality: Evidence from goodwill impairment," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 216-231.
    3. Saikat Sovan Deb & Huu Nhan Duong & Amanjot Singh & Harminder Singh, 2024. "Does hedge fund activism improve investment efficiency?," Review of Accounting Studies, Springer, vol. 29(3), pages 2551-2577, September.
    4. Bajzik, Josef, 2023. "Is the role of shareholder activism in corporate governance overestimated?," Finance Research Letters, Elsevier, vol. 58(PC).

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