Abstract
We use divestitures to examine all possible outcomes of activist intervention. Using hand-collected data on activist-initiated divestitures, we show that hedge funds do not use divestitures to attract bidders, nor do they liquidate their holdings faster than other activists. Rather, divestitures initiated by hedge funds improve long-term target firm profitability, even relative to other activists. We show that hedge fund activists use derivatives to accumulate voting rights without having to disclose—a strategy that is not available (or is much more costly) to other activists—when they identify value-creating opportunities through divestitures.
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