Sharks or Saviors? The Impact of Hedge Fund Activists on Innovation

Over the past decade, Hedge Fund Activists have increasingly grabbed headlines and media attention with campaigns targeting publicly traded companies. These activist campaigns have targeted iconic companies like DuPont, Apple, and Microsoft. With over $120 Billion in assets, it’s estimated that Hedge Fund Activists have initiated public campaigns against over 15% of Fortune 500. This paper proposes a study to uncover the effect of hedge fund activism on the innovation efforts of targeted firms. Others have suggested that Hedge Fund Activist events can improve firm innovation by increasing efficiency and innovation output. We investigate the effects of activist campaigns on the inputs to the innovation process and innovation outputs and find that Activist events have a limited impact in the short term but a negative and significant impact on innovative performance in the long term. By investigating the impact of Hedge Fund Activism on different stages of the innovation process, we provide an explicit link between activist events and firm innovation performance, a link that has been underdeveloped in prior literature.