Activist hedge funds significantly improve company performance

Hedge fund activists achieve substantial improvements in the performance and governance of target companies. Institutional sell-off allows hedge funds to acquire shares with limited price impact.

Hedge fund activists typically target companies with large institutional ownership. The rationale for this is twofold. First, institutional investors are able to better evaluate the success of an activist intervention, facilitating a faster convergence of the target’s share price to its improved fundamental value. Second, institutional voting directly impacts a campaign’s success in its more confrontational stages (Gilson and Gordon, 2013).

However, the academic literature has not addressed the