Impact of public demands on the performance of hedge fund activist engagements

Abstract

Hedge fund activists raise public demands around engagement announcements for a quarter of their engagements. I analyze the short- and long-term effects of public demands on the performance of target firms using an international dataset of 1670 activist engagements across 35 countries between 2008 and 2019. For the global sample, I estimate significantly higher announcement returns for engagements with public demands than for those without public demands. At the regional level, differences in announcement returns between such engagements are significant only in North America, and not in Europe and the Asia-Pacific region. I find no evidence of a significant long-term outperformance of engagements with public demands in general and for engagements with successfully enforced public demands, compared to the remaining engagements for all regions. My findings indicate that activists have started to target firms with different characteristics than previously, which may help to explain the non-existent long-term outperformance of engagements with public demands.