Persistence of Activist Short-Sellers’ Performance

Abstract

We examine whether activists exhibit persistent cross-sectional performance differences in identifying targets to short. We find no evidence of performance persistence using target returns, consistent with Ljungqvist and Qian (2016), but document that the current target is more likely to delist if the activist had a greater percentage of past targets that delist. Investors recognize this persistent aspect of performance by reacting more to short campaigns initiated by activists with more past targets that delisted. Furthermore, we find that the performance persistence in identifying targets that delist is greater when activists are inexperienced. The evidence is consistent with activists’ facing greater incentives to establish a reputation early in their careers, and provides support for Benabou and Laroque (1992)’s dynamic reputation model.