| This dissertation examines the effects of shareholder activism by hedge funds from 1998--2005. When hedge funds accumulate more than 5% of a firm, they must file a regulatory disclosure with the Securities and Exchange Commission (SEC) that indicates whether their investment intentions are active or passive. Firms that are targeted by hedge funds for active purposes experience larger excess stock returns and improvements in operating performance (ROA) than a control group of firms that are targeted by the same hedge funds for passive purposes. These operational improvements appear to be driven by the divestiture of underperforming assets. Further examination of several organizational features of the hedge funds, finds that funds engaging in activism are more likely to have longer lock-up and withdrawal notification periods than their non-activist peers, indicating that liquidity concerns may be an important determinant in the efficacy of activism. Finally, the returns to the hedge fund are larger for their active blocks than their passive blocks, indicating that higher returns to activist shareholders may mitigate the cost of their monitoring effort. |
