How Activist Investors Influence Corporate Social Responsibility

Abstract

We investigate how hedge fund activism affects target firms’ financial and social performance. We create a matched sample from hand-collected data on all available hedge fund activist campaigns between 2000 and 2012. Using difference-in-differences, we find targeting by an activist hedge fund is associated with an immediate but short-lived increase in firm value, and an immediate and long-lived decline in cash flow. We also find targeting suppresses firm social performance three- to five-years after an activist campaign. In additional analyses, we find reductions in other operational areas of targeted firms, including: number of employees, R&D spending, capital expenditures, and operating expenses. We discuss our findings from a multi-stakeholder perspective in an effort to move beyond a polarizing debate about the merits of hedge fund activism.