Abstract
Hedge fund activism has emerged as a key corporate governance mechanism. While studies and anecdotal evidence suggest that activist hedge funds increase shareholder value, the mechanism by which they influence management to increase shareholder value is relatively unknown. We draw on the attention-based view of the firm to develop a deeper understanding of the effect of hedge fund activism on managerial attention. Through a textual content analysis of earnings transcripts of Fortune 500 companies from 2003 to 2017, we argue and find that the attention of the CEO to shareholder value and to capital allocation increases when the firm is targeted by an activist hedge fund.
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