Market reaction to announcement of hedge fund activism and takeovers : a US study

Abstract

This paper studies the impact of hedge fund activism and takeovers on public firms in the United States of America. The research examines samples of 13D filings which show that a positive abnormal return is achieved when activists announce their intentions for a target company. I have taken sample data from the SEC EDGAR website between 2005 and 2012. The significant positive abnormal return for the activism target firm is calculated as 11 percent around the announcement date. The returns are explained by the performance of hedge fund activists and the process by which they force target firms into takeovers. The paper also shows that the firms targeted by the activists have a higher probability of being acquired.