The Value of Activism: A Hedge Fund Investor’s Perspective*

Felix Zhiyu Feng† Chengdong Yin‡ Caroline H. Zhu§

Abstract

Using a novel and comprehensive dataset, we examine the return from activism compared to the
return the same activist hedge fund generates from its non-activism equity investments. On
average, targets do not outperform or underperform non-targets within the same fund.
Outperformance is observed, however, in the first three months of intervention and in particular
when the activist hedge fund has had prior intervention experience or is more familiar with the
target firm’s industry. The evidence suggests that activist hedge funds are underinvesting in
activism. Our paper provides fresh insight into the value of hedge fund activism by considering it
from the perspective of activist hedge funds’ own investors.

JEL Classification: G23, G11, G14

Key words: hedge fund, shareholder activism, portfolio analysis

*
We thank Alon Brav for providing the data on hedge fund activism and helpful comments. All errors are our own.
†
Department of Economics, University of Notre Dame, ffeng@nd.edu
‡
Department of Finance, Krannert School of Management, Purdue University, yin80@purdue.edu
§
Department of Finance, Price College of Business, University of Oklahoma, carolinehzhu@ou.edu

Electronic copy available at: https://ssrn.com/abstract=3158826

1. Introduction

News articles referencing hedge fund activism exploded from nearly nonexistent in 1990 to
almost 25,000 by 2014 (Tonello, 2016). Academic articles on the subject have kept pace. Earlier
studies extensively documented post-intervention changes in target firms—policy and
performance related and in the short and the long run. More recently, studies also documented
firms’ proactive response to the likelihood of being targeted. While the focus for the most part
has been on target shareholders and managers, how other corporate stakeholders, for example
bondholders and employees, are affected by hedge fund activism is receiving growing attention.
Research on hedge fund activism, however, remains very much firm-centered.

In this paper, we investigate the value of activism from a new perspective: that of activist hedge
funds’ own investors. We are interested in the following questions: (1) How does the return an
activist hedge fund generates from holding the stock of target firms stack up against the return
the same fund generates from holding non-target stocks? (2) How does the return difference (if
any) vary in the cross section and in the time series? (3) How are activist hedge funds allocating
capital between target and non-target stocks, and does the allocation make sense in light of the
answers to the preceding questions?

We construct a novel and comprehensive dataset of the target and non-target equity holdings of
activist hedge funds from 1997 to 2011. We match hedge fund interventions, identified (mostly)
by mandatory public disclosures via Schedule 13D filings, to hedge fund characteristics
information from several major hedge fund databases and hedge fund equity holdings
information from the Thomson Reuters Institutional Holdings database. We perform both
portfolio and regression analyses on this dataset.

On average target holdings do not outperform or underperform non-target holdings of the same
activist hedge fund. However, we do find evidence of outperformance (in terms of both raw and
risk-adjusted returns) in the first quarter of intervention—particularly in the first month.

Electronic copy available at: https://ssrn.com/abstract=3158826

Cross-sectionally, target holdings outperform non-target holdings within funds that have had
prior intervention experience, in terms of raw returns. They generate similar risk-adjusted
returns, however. This suggests that funds that are experienced activists can generate higher
returns by engaging rather than simply holding riskier firms. We also find outperformance in
funds that are more invested (in terms of number and value of stocks held) in target industries,
suggesting that funds with more knowledge of an industry can generate higher returns by
engaging firms in that industry than by simply holding their stocks.

We find that activist hedge funds allocate significantly less capital toward targets than toward
their own non-target holdings. This is somewhat surprising, given that target holdings do not
underperform non-target holdings on average. It is even more so when target holdings actually
outperform non-target holdings. It appears, therefore, that activist hedge funds are underinvesting
in activism and could potentially improve their overall returns by allocating more capital toward
targets.

We also examine how activist hedge funds respond to capital flows. We find that following an
inflow of capital, activist hedge funds—especially those holding at least one target at the time—
significantly increase investment in activism, in terms of both initiating new interventions and
increasing the stake in current targets. Interestingly, the proportion of total equity portfolio value
invested in targets versus non-targets is largely independent of capital flow. Activist hedge funds
therefore appear to curb investment in activism for reasons other than resource constraint.

Much has been said about whether activist hedge funds create value for the shareholders of target
firms. We have yet to see systematic evidence on whether they create (and perhaps destroy)
value for their own investors as a result of their activism efforts. Moreover, the literature has not
ruled out the possibility that the superior performance of activist hedge funds is primarily a
reflection of superior stock picking and market timing skills. By comparing target holdings
against the rest of the equity portfolio of the same activist hedge fund, we can tease out the
impact of activism, with fund manager skills automatically controlled for. As such, we can more
confidently attribute differential performance of target relative to non-target stocks documented
in this paper to the value added of activism.

Electronic copy available at: https://ssrn.com/abstract=3158826

Another contribution of our paper is in terms of data. We match hedge fund interventions
(publicly disclosed via Schedule 13D filings) to four mainstream hedge fund databases—Hedge
Fund Research (HFR), Lipper TASS, BarclayHedge and Eurekahedge. This is not a trivial
process, as there is no common fund identifier between any of the datasets and every match must
be done manually based on fund name. To ensure the quality of matches, we reference Capital
IQ, fund websites and other online sources whenever there is a possibility that slightly varied
names might represent different funds. The result is a unique dataset, to our knowledge the most
comprehensive recording of the equity investments and various characteristics of hedge funds
that have publically intervened in corporate management at least once.

Despite a growing number of studies on hedge fund activism, those that examine the returns to
activism from the standpoint of activist hedge funds rather than their target firms are rare. The
two studies to which our paper most relates are Brav, Jiang, Partnoy, and Thomas (henceforth
BJPT) (2008b) and Boyson and Mooradian (2008). The former obtains fund returns information
from Morningstar CISDM and Hedgefund.net for 103 activist hedge funds from 1995-2007, and
the latter obtains fund returns information from TASS for 89 activist hedge funds from 1994-
2004. Both studies find that activist hedge funds outperform non-activist hedge funds as well as
some stock market index benchmark (such as the S&P 500).

An important distinction of our paper is that we compare the returns to activism and that to non-
activism equity investments within the same activist hedge fund. While BJPT(2008b) and
Boyson and Mooradian (2008) provide evidence that activist hedge funds outperform non-
activist hedge funds and the market, they cannot distinguish the incremental value generated by
activism per se. That is, the superior stock picking and/or market timing skills of the activist
hedge fund managers might be primarily responsible. Since engaging firms involves significant
resources (researching the target, communicating with target managers and directors, gathering
support from the target’s major investors, etc.), it could very well be a costly distraction. That is,
the activist hedge funds documented by the two previous studies to outperform the non-activist
hedge funds might do even better by focusing on picking firms for investment rather than also
for intervention. These studies, therefore, leave open the possibility that activist hedge funds
actually destroy rather than create value for their own investors as a result of activism. Another

4
distinction of our paper is in terms of sample size. The sample of activist hedge funds in both
previous studies is small relative to the actual number of hedge funds that have ever publicly
engaged firms. By matching to multiple hedge fund datasets, we achieve a significantly larger
sample, in terms of both the number of activist hedge funds and years covered. As such, our
results should be more representative.

Our study also contributes to the broad literature on the impact of hedge fund activism on various
market participants. For example, BJPT(2008a) and Klein and Zur (2011) focus respectively on
the equity investors and bondholders of target firms. More recently, Gantchev, Oleig and
Joristika (2017) and Feng, Xu and Zhu (2017) focus respectively on the shareholders and
bondholders (and new loan providers) of firms under the threat of hedge fund activism. The
current study shifts the focus away from firms and instead asks whether and if so how corporate
engagement impacts activist hedge funds’ own investors.

2. Data and Summary Statistics

The sample of hedge fund activism events extends that in Brav et al (2008a) to cover years from
1997-2011. Here we provide a brief description of the collection procedure and refer interested
readers to the original paper for a more detailed description. Hedge fund activism events are first
identified from a complete list of Schedule 13D filings. Section 13D of the Securities and
Exchange Act of 1934 requires an investor to file a Schedule 13D within ten days of acquiring
5% or more of a public company's stock with the intention to influence management. The filing
includes information on the identity of the filer or activist investor, the identity of the target firm,
the ownership percentage held in the target firm, and the purpose for shareholding. The activist
investor must continue to file amendments when the size of its ownership stake or its reason for
activist shareholding changes materially.

Using information from the Schedule 13D filings and aided by news searches and telephone
requests for filers' self-classification, the authors identify a group of hedge fund filers. From
these, they first exclude those that filed only one Schedule 13D without indicating the purpose of
shareholding. They next exclude filings for distressed financing or risk arbitrage reasons and

5
those by closed-end funds or other non-regular corporations. Finally, to avoid possible bias from
sampling based solely on the Schedule 13D filings, the authors collect a sample of hedge fund
interventions unaccompanied by the filings—those in which the activist hedge fund’s stake in the
target does not cross the 5% threshold to warrant public disclosure of the intervention. First, the
authors conduct news searches in Factiva using “hedge fund” and “activism” as key words.
Then, the authors use the Thomson Reuters Institutional Holdings database to retain only
interventions in which the target firm's market cap exceeds $1 billion and the activist hedge
fund’s stake in the target firm exceeds 2%. The authors track the development and resolution of
each intervention in the sample by following the news and Schedule 13D/A filings (amendment
filings to the original Schedule 13D filing).

For the funds in the hedge fund activism sample, we obtain equity holdings information from the
Thomson Reuters Institutional Holdings database. Information on fund characteristics and
performance is gathered from several sources. We first search for the funds in the Hedge Fund
Research (HFR) and Lipper TASS databases. If a fund does not report to either, we also look for
it in two additional databases: BarclayHedge and EurekaHedge. Following the hedge fund
activism literature and for succinctness, activist hedge “fund” refers to the fund family.

Unfortunately, there is no common identifier between any of the hedge fund databases. We
therefore manually match funds from different databases based on their reported names.
Whenever we encounter a pair of names that appear similar but not identical, we use the Capital
IQ database and search the Internet to determine whether they actually represent the same fund.
Since the funds’ equity holdings are reported quarterly, while their size and return information
are reported monthly, we assume that the stocks are being held in the intervening months
between reporting dates.

Finally, for the activist hedge funds’ equity holdings, we collect their monthly returns and shares
outstanding information from the CRSP database. We use several filters to minimize the impact
of outliers and reporting errors. First, we exclude a stock if its shares held by an activist hedge
fund as reported in the Thomson Reuters Institutional Holdings database exceed its total shares

6
outstanding as reported in CRSP. Second, we remove penny stocks (with price below $5/share).
Third, we exclude funds with less than $10 million of assets under management.1

In addition to comparing raw returns, we also calculate risk-adjusted returns (alpha). What the
investors of an activist hedge fund should really like to know is whether the fund can generate
additional returns for them by means of corporate engagement without subjecting them to greater
risk. Therefore, for each target and non-target stock held by each activist hedge fund, we
calculate its risk-adjusted return, by benchmarking its raw return against the corresponding
Fama-French (FF) 25 value-weighted size and book-to-market portfolio return.2

Table 1 presents summary statistics for our sample. Over the 1997 to 2011 sample period, there
are 222 unique activist hedge funds, 1,022 unique target firms, and 22,826 fund-month
observations. To put these numbers in perspective, Brav et al (2008b) covers 103 activist hedge
funds and Boyson and Mooradian (2008) covers 89.

[Insert Table I here]

Panel A of Table I summarizes the number of unique targets per activist hedge fund. On average,
an activist hedge fund targets five to six different firms during the sample period. However, the
median is two target firms and the standard deviation is 10.69 target firms, indicating that
intervention frequency varies significantly across activist hedge funds.

Panel B of Table I summarizes the holding period (number of months) an activist hedge fund
holds a target firm’s stock. Note that more than one activist hedge fund can hold the same target,
and one activist hedge fund can hold the same target more than once. The mean holding period is

1
Monthly returns of penny stocks could be very high and bias our results. Before the third filter is applied, the first
percentile family size is about $8 million and the fifth percentile is about $41 million. The third filter therefore
removes outliers that are the smallest funds. The fund literature (especially on mutual funds) commonly applies a
filter of $5 million for individual funds. A higher cutoff is reasonable for fund families.
2
We use the ceq variable from the CRSP/Compustat merged database for book value. We use the INDL format of
the variable for all stocks except financial stocks (SIC code starting with “6”) for which we use the FS format. The
results are robust to benchmarking against the 100 portfolio return.

7
about three years, and the median is about two years. The activism investment horizon therefore
tends to be long, which is consistent with literature.

Panel C of Table I describes the equity portfolios of the activist hedge funds in our sample. The
average (median) asset-weighted raw return is 1.10% (1%) per month and abnormal return is
0.41% (0.27%) per month. The activist hedge funds in our sample tend to be quite large, with
mean (median) equity portfolio value of $1.8 billion ($0.5 billion). On average, they hold about
130 stocks in a given month, although there is significant variation, with some funds holding
well over 100 stocks and others only a handful.

To examine the returns to activism, for each activist hedge fund and in each month, we divide its
equity holdings into three groups: Target, which consists of firms it has targeted for intervention;
Block, which consists of non-target firms in which it is a blockholder (owning more than 5% of
outstanding shares); and Nonblock, which is the rest of its equity portfolio (consisting of non-
target firms in which it is not a blockholder). By comparing the Target group against the Block
and Nonblock groups, respectively, we can control for the return difference between targets and
non-targets that is due to the activist hedge funds’ blockholding alone (absent of activism, see
Edmans et al. 2013).

Panel D of Table I summarizes the number of stocks held and the percentage of total assets
invested in each group by each activist hedge fund. A fund may not always have stocks in all
three groups. On average, a fund holds 1-2 targets, which account for almost 7% of total equity
value; 4-5 blockholdings of non-targets, which account for 14% of total equity; and >100 non-
blockholdings of non-targets, which make up the remaining equity portfolio value. For most
activist hedge funds, it appears that activism plays only a small role in their overall investment
activities.

3. Portfolio Analysis
That hedge fund activism has a positive impact on target firms’ share price is well documented in
the literature. In this section, we conduct portfolio analysis to examine how activism contributes

8
to the overall performance of activist hedge funds’ equity portfolios. In Section 3.1, we first form
equal-weighted portfolios for each group of stocks for each activist hedge fund and then compare
their performance. This allows us to see whether an activist hedge fund’s target stocks generate
higher returns than its non-target stocks. This does not tell us, however, whether target stocks
contribute more to the activist hedge fund’s overall equity portfolio return, as sufficient capital
may not be allocated toward these stocks. Therefore, we also form asset-weighted portfolios in
Section 3.2.

3.1. Equal-weighted portfolio analysis

Each month, we form an equal-weighted portfolio for each group of stocks as defined in Panel D
of Table I. In Table II, we compare the performance between the Target group and the other two
groups respectively.3 In terms of raw returns, Target underperforms Block by -0.20% per month,
but the difference is not statistically significant. On the other hand, Target outperforms Non-
block by 0.13% per month, but the difference is also not statistically significant. Similarly,
Target on average has slightly lower alphas than Block (-0.33%) and Non-block (-0.07%), but the
differences are again statistically insignificant.

[Insert Table II here]

While on average an activist hedge fund’s target stocks do not outperform (or underperform) its
non-target stocks, it remains an interesting question whether it ever does and, if so, why. To
answer this question, we further divide the stocks in the Target group and compare the subgroups
to the Block and Non-block groups held during the same time.

We first examine time series heterogeneity in the return difference between an activist hedge
fund’s target and non-target holdings. For each activist hedge fund in each month, we divide its
Target group holdings into two subgroups and form a portfolio for each. Specifically, we form a
“≤ X months” portfolio that consists of target stocks held for up to X (1, 3 or 6) month(s) since
the 13D date” and a “> X months” portfolio that consists of the remaining target stocks (that is,

3
More specifically, for each activist hedge fund and in each month, we first calculate the following pair of cross-
group return differences: Target group minus Block group and Target group minus Nonblock group. Then, we take
the average across all fund-months. Finally, we test whether this average is significantly different from zero.

9
target stocks held for more than X months since the 13D date). For each of the subgroup
portfolios, we compare its return to its corresponding non-target portfolio (formed from the
Block and Non-block groups). Table III summarizes the results.

[Insert Table III here]

Panel A of Table III shows that an activist hedge fund’s target holdings outperforms its Block
and Non-block counterparts in the first month of activism, by 1.7% (1.43%) and 1.55% (1.24%)
in terms of raw (abnormal) returns per month respectively. These differences are both
economically and statistically significant. We find that, consistent with literature, target stock
price reacts positively to 13D announcement of hedge fund intervention. After the first month,
however, both the raw and abnormal returns are is slightly lower for an activist hedge fund’s
target stocks than its non-target stocks, but the differences are economically small and mostly
statistically insignificant.

Panel B of Table III compares target versus non-target holdings in and after the first three
months of activism. In terms of raw returns, the results are similar to those shown in Panel A. In
the three months immediately following 13D announcement of intervention, the holdings of
target stocks outperform the holdings of non-target stocks by the same activist hedge fund.
Thereafter, however, return differences become economically and statistically insignificant. The
outperformance of activism holdings is weaker based on risk-adjusted returns: target stocks earn
marginally higher alphas than non-target stocks but the difference is statistically insignificant.

Panel C shows the same comparisons but for the six-month period following intervention
announcement. While targets still outperform non-target block or non-block holdings during this
period, the differences are not statistically significant and remain insignificant thereafter.

These results are in line with those of previous studies, such as BJPT (2008b) and Bebchuk, Brav
and Jiang (2015), which also document abnormal returns to hedge fund activism in a short
window of time around 13D announcement. An important difference between our study and
previous studies is that whereas previous studies benchmark target stock performance against the

10
market or the rest of the industry, we benchmark against the activist hedge funds’ other holdings,
since we are interested in whether engaging in activism benefits the activist hedge funds’ own
investors. As such, while the observation that gains to hedge fund activism are mostly realized in
the immediate months following announcement is the same, what it implies is different in our
paper than in previous papers.

We also look for heterogeneity in the return difference between an activist hedge fund’s target
and non-target holdings in the cross-section. One question we find interesting is whether
intervention experience is important for an activist hedge fund to generate returns from holding
targets that beat those from holding non-targets. On the one hand, if a fund picks the most
profitable targets first, then its earliest targets would have the highest returns. On the other hand,
identifying profitable targets may be a skill that must be acquired through experience, in which
case a fund’s most recent targets would have the highest returns. To see which of the two is more
plausible, for each fund, we isolate its “starter” target (which represents the fund’s first
experience with intervention) from its later targets. We then form a “starter” targets subgroup
comprised of the starter target of all the funds and an “experienced” targets subgroup comprised
of the later (non-starter) targets of all the funds, and compare returns between each of the two
target subgroups and the non-target Block and Non-block groups, respectively.4

According to Panel A of Table IV, there is not a statically significant return difference between
an activist hedge fund’s starter target and its non-target block or non-block holdings. A fund’s
later targets, however, significantly outperform both its non-target block holdings and its non-
target non-block holdings, but only in terms of raw-returns and not abnormal returns. The data
therefore appear to support the “activism is an acquired skill” hypothesis. That is, through past
intervention, a fund learns to identify and engage high-risk targets that deliver higher returns
than what it can realize from holding non-target stocks.

[Insert Table IV here]

4
Since previous analyses show that target holdings generate most of their incremental returns relative to non-target
holdings in the first months after the 13D filing, in Table V we only present results for the first three months after
the 13D filing date. After this period, there are no longer statistically significant return differences between target
and non-target holdings, whatever the cross-sectional sorting of target holdings.

11
The result that a fund’s later targets produce higher raw returns but similar risk-adjusted returns
compared to its non-target holdings complements previous studies that compare the overall
returns of activist hedge funds and their non-activist peers. Boyson, Ma and Mooradini (2015)
show that as funds accumulate activism experience, they become more aggressive in engaging
firms and their targets tend to outperform non-targets more than do the targets of funds with less
activism experience. We show that as funds accumulate activism experience, they also pick
riskier targets. Moreover, Boyson, Ma and Mooradini (2015) document that experienced activist
funds generate positive alphas relative to the market portfolio. We find the target holdings of an
experienced activist fund generate similar alphas as its own non-target holdings. This suggests
that the abnormal return generated by experienced activist funds is attributable to their selecting
better firms simply to hold as well as to engage.

Knowledge of an industry should be helpful in selecting targets in that industry. We test this
“information advantage” hypothesis using the number of stocks held and the percentage of
capital invested in a target industry as proxies for a fund’s knowledge of that industry. We
further divide a fund’s Target group of stocks every month into two subgroups based on whether
the number or portfolio weight of the fund’s non-target stocks in the same industry as the target
is above or below the sample median that month.

Panels B and C of Table IV compare the returns of the two portfolios formed for the two target
subgroups and the returns of the Block and Non-block portfolios, respectively. According to
Panel B, when a hedge fund is holding more stocks in target industries, its target holdings tend to
outperform its non-target holdings, earning higher risk-adjusted as well as raw returns.
According to Panel C, when a higher percentage of a hedge fund’s total asset value is invested in
target industries, its target holdings also tend to outperform its non-target holdings. Altogether,
the results in Table IV suggest that experienced and informed activist hedge funds hold more
profitable targets.

3.2. Asset-weighted portfolio analysis

In light of the evidence that activist hedge funds’ target holdings outperform their own non-target
holdings, one naturally wonders whether activist hedge funds allocate assets between the two

12
accordingly. To address this question, we again sort each activist hedge fund’s holdings every
month into the three groups: Target, Block and Non-block, but then weight each group’s portfolio
according to the fraction of the fund’s overall equity portfolio value invested in that group. This
asset-weighted return for a group of holdings within a fund’s overall equity portfolio reflects
how much that group of holdings contributes to the fund’s overall equity portfolio return. Having
one group of holdings with a larger equal-weighted return but a smaller asset-weighted return
compared to another group would indicate underinvestment in the former. That is, the activist
hedge fund would be able to increase its overall equity portfolio return by allocating more capital
toward the former group.5

Table IV presents the difference between the asset-weighted return of an activist hedge fund’s
target holdings and that of its non-target block holdings and non-target non-block holdings,
respectively. In the full sample, the monthly raw (risk-adjusted) return differences are 0.14% (-
0.08%) and -0.46% (-0.18%), respectively, and highly statistically significant. These negative
return differences suggest that the contribution of an activist hedge fund’s target holdings to its
overall equity portfolio return is much lower than the contribution of its non-target holdings.
From Table II, we know that on average target holdings generate the same return as non-target
holdings. Therefore, these negative return differences are driven by the small investment in
target holdings (only 6.7% of an activist hedge fund’s overall equity portfolio value), according
to Table I).

[Insert Table V here]

More interesting is how activist hedge funds allocate capital between target and non-target
holdings when the former outperform the latter. The equal-weighted portfolio analyses reveal
this to be the case in the first one to three months following the 13D announcement of
intervention, and in industries in which the fund is heavily invested. Panel B shows the asset-
weighted return differences between the target portfolio and the two non-target portfolios within
the first one to three months of intervention (Panel B), respectively. They are negative and

5
This argument assumes that one fund’s buying more of a stock is not sufficient to move the price of that stock and
therefore affect the fund’s marginal return from buying more of that stock. This is likely the case, as the average
(median) percentage shares of a stock held by a single activist hedge fund in our sample is only about 10% (7%).

13
statistically significant, whereas the equal-weighted return differences are positive and
statistically significant. In Panel C, we further divide each activist hedge fund’s post intervention
quarter target portfolio into two subgroups based on whether or not the fund is heavily invested
in the target industries.

Altogether, the asset-weighted portfolio analyses show that activism actually contributes little to
an activist hedge fund’s overall equity portfolio return, even when it performs better than the
fund’s non-activism investments. The results suggest therefore that activist hedge funds on
average underinvest in activism, and that by allocating more capital toward targets, especially in
the early stage of intervention, they may be able to generate more return for their investors.

4. Regression Analysis
In this section, to corroborate the results from the portfolio analyses, we also conduct regression
analyses. Regression analyses quantify the return difference between an activist hedge fund’s
target holdings and its non-target holdings with easy to interpret coefficients and allow for the
examination of other potential driving factors, such as fund size and diversification.

Our baseline regression takes the following form:

(𝐄𝐪. 𝟏) 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑖,𝑡
= 𝛽0 + 𝛽1 𝐹𝑖𝑟𝑠𝑡 3 𝑀𝑜𝑛𝑡ℎ𝑠𝑖,𝑡 + 𝛽2 𝐹𝑖𝑟𝑠𝑡 𝑇𝑎𝑟𝑔𝑒𝑡𝑖,𝑡
+ 𝛽3 𝐴𝑠𝑠𝑒𝑡 𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝐴𝑐𝑡𝑖𝑣𝑖𝑠𝑚𝑖,𝑡 + 𝛽4 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑡𝑜𝑐𝑘𝑠 𝑖𝑛 𝐴𝑐𝑡𝑖𝑣𝑖𝑠𝑚𝑖,𝑡
+ 𝛽5 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑖𝑒𝑠 𝑖𝑛 𝐴𝑐𝑡𝑖𝑣𝑖𝑠𝑚𝑖,𝑡 + 𝛽6 𝐹𝑎𝑚𝑖𝑙𝑦 𝑆𝑖𝑧𝑒𝑖,𝑡−1
+ 𝛽7 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑡𝑜𝑐𝑘𝑠𝑖,𝑡 + 𝛽8 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑖𝑒𝑠𝑖,𝑡 + 𝑌𝑒𝑎𝑟 𝐹𝐸
+ 𝐹𝑎𝑚𝑖𝑙𝑦 𝐹𝐸

Here, First 3 Months is an indicator variable that equals one if fund i’s intervention has lasted no
more than three months at month t. First Target is an indicator variable that equals one if fund i
is holding its first target in month t. We control for the weight of overall equity portfolio value
invested in target stocks, the number of targets being held, and the number of industries to which
the targets belong. We also control for general fund characteristics, such as size, total number of

14
stocks held, and total number of industries held. All regressions include year fixed effects and
fund fixed effects, with standard errors clustered at the fun level and the year level (following
Petersen, 2009).

Table V reports the regression results of (Eq. 1). In regressions (1) and (2) of Panel A, the
dependent variable is the raw return of target holdings minus, respectively, that of non-target
block holdings and non-target non-block holdings. The coefficient on the First 3 Months dummy
is positive in both regressions, consistent with the findings of the portfolio analyses that targets
generate higher returns than non-targets in the immediate months following 13D announcement
of intervention. The magnitude of the return difference between target holdings and non-target
block holdings is 1.08% per month in the first three months of intervention and is statistically
significant. Also consistent with the findings of the portfolio analyses, the coefficient on the First
Target indicator variable is negative, which means that a fund’s later targets (after it has had
prior intervention experience) tend to outperform its starter target.

[Insert Table VI here]

Interestingly, the coefficient on the weight of an activist hedge fund’s overall equity portfolio
invested in target holdings is negative and highly significant, which means that the performance
of target holdings declines with the amount invested. That is, investment in activism exhibits
decreasing returns to scale.6 Higher investment in activism could reflect more difficult activism,
as an activist hedge fund may increase its stake in a target in response to push back from
management. Indeed, Boyson and Pichler (2017) find that managers often make use of defensive
mechanisms such as poison pills to ward off activist hedge funds, which in turn can be met with
counter-resistance measures by the latter. It should be noted that the decreasing returns to scale
observation, that a higher overall equity portfolio weight allocated toward targets tend to lead to
lower target returns, is not inconsistent with the “learn by doing” observation, that an activist
hedge fund’s later targets tend to outperform its first target. In regressions (3) and (4), we
replace the First Target dummy with a measure of fund activism experience—the number of

6
That the performance differences between target and non-target holdings decline with the portfolio weight of target
holdings does not mean funds should not increase investment in activism. Given that the difference is still positive,
it is very possible that doing so would result in greater dollar profits for funds.

15
unique firms targeted as of month t. The results are similar to those of regressions (1) and (2).
Performance differences are greater during the first three months of activism and when funds
allocate less overall equity portfolio weight toward target holdings.

Panel B of Table VI repeats the same regressions as those in panel A but with risk-adjusted
return difference as the dependent variable. The results are similar: within the same activist
hedge fund, target holdings generate higher risk-adjusted returns in the first three months of the
announcement of intervention. Although the coefficient on the First 3 Month explanatory
variable is statistically weaker than in the raw-return regressions, the economic magnitude (about
0.9% and 0.5% higher per month than Block and Non-block, respectively) is still sizable. Target
holdings’ weight in the overall equity portfolio of an activist hedge fund is negatively related to
their risk-adjusted return, indicating decreasing returns to scale with investment in activism.

We also examine factors associated the performance of an activist hedge fund’s overall equity
portfolio as measured by the asset-weighted average return of all the stocks held by the fund.
Specifically, we run the following regression:

(𝐄𝐪. 𝟐) 𝐹𝑢𝑛𝑑 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖,𝑡

= 𝛽0 + 𝛽1 𝐴𝑐𝑡𝑖𝑣𝑖𝑠𝑚𝑖,𝑡 + 𝛽2 𝐹𝑖𝑟𝑠𝑡 3 𝑀𝑜𝑛𝑡ℎ𝑠𝑖,𝑡 + 𝛽3 𝐹𝑎𝑚𝑖𝑙𝑦 𝑆𝑖𝑧𝑒𝑖,𝑡−1
+ 𝛽4 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑡𝑜𝑐𝑘𝑠𝑖,𝑡 + 𝛽5 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑖𝑒𝑠𝑖,𝑡 + 𝑌𝑒𝑎𝑟 𝐹𝐸
+ 𝐹𝑎𝑚𝑖𝑙𝑦 𝐹𝐸.

The activism dummy equals one if activist hedge fund i has at least one ongoing intervention in
month t and zero otherwise. The other variables are defined as before.

Table VII presents the results from the estimation of (Eq. 2.) In columns (1) and (2), fund
performance is measured by raw returns. The coefficient of interest is that on the Activism
dummy. It is positive and significant, suggesting that activist hedge funds with at least one
ongoing intervention outperform those that do not. Note that this is distinct from the main
finding of Brav et al (2008b) and Boyson and Mooradini (2008) that activist hedge funds
outperform non-activist hedge funds. In our study, all are activist hedge funds, as we only

16
include hedge funds that filed at least one 13D during our sample period. What column (1) of
Table VII suggests is that among the activist hedge funds in our sample, those holding at least
one target earn higher returns than those that are not holding any target in that month but that
have either held a target in the past or will hold one in the future.

[Insert Table VII here]

Columns (3) and (4) of Table VII report fund performance as measured by risk-adjusted returns.
While there is on average there is no significant difference between an activist hedge fund
holding at least one target and one that is not holding any, the former performs marginally better
when at least one of its interventions is still in the early stage (within the first quarter of the
announcement of intervention). Overall, the regression analyses generate results that are
consistent with those from the portfolio analyses.

In regression (Eq. 2), we include the number of stocks and the number of industries held by a
fund as potential explanatory variables. To hold a diversified portfolio or to concentrate
investment for effectiveness is a delicate balance that funds have to strike at both the stock level
and the industry level. Based on Table VII, at the stock level, the effect of holding a greater
number of stocks is positive and significant, in other words the benefit of diversification
dominates. However, at the industry level, the effect of spreading investment across a greater
number of industries is negative. Taken together, the two coefficients (on the number of stock
held and the number of industries held, respectively) suggest that to maximize returns, funds
should concentrate investment in a few industries but maintain a diversified portfolio within
those industries.

Finally, the coefficient on fund family size is negative and significant in both regressions,
consistent with the hedge fund literature’s well-documented finding that hedge funds in general
suffer diseconomies of scale.

17
5. Hedge Fund Flow and Holdings

So far, this study has made the new observation that an activist hedge fund’s target holdings
generate higher returns than its non-target holdings. We now examine how activist hedge funds
allocate new capital: mainly increase stakes in current targets, launch new interventions, buy
more of currently held non-target stocks or buy new non-target stocks? While the capital
allocation choice of mutual funds has been extensively studied, we hope to shed light on the
capital allocation choice of activist hedge funds.

Specifically, we test for the effect of fund flow on the following variables: Total Number of
Targets, Total Value of Activism Shares Held, Maintain Existing Campaigns (a dummy variable
that equals one if a fund remains engaged in all its existing targets), Average Percentage of
Target Shares Held (which measures how much percentage ownership a fund holds in a target,
averaged across all the targets held by the fund), Fraction of Active to Total Stock Holding
(which is the fraction of a fund’s value held in target stocks to the total value held in all stocks).
We run two regressions for each dependent variable, one without controls and one controlling for
fund family size, age, number of funds in the family and family fixed effects.

Table VIII Panel A reports the results for the full sample. Fund flow has a positive and
statistically significant effect on the number of target stocks held and the total value invested in
target stocks. A one standard deviation increase in fund flow (0.27) implies 0.16 (0.12 with
controls) more target stocks held and $1.04 million ($0.91 million with controls) more invested
in target stocks. A fund is also 40% (37% with controls) more likely to remain engaged in all of
their existing targets. While a fund tends to increase the number of shares held in a target and the
fraction of total value from all stock holdings held in target stocks, these changes are
economically small and statistically insignificant.

Altogether, these findings suggest that activist hedge funds to allocate new capital toward
activism, both in terms of launching new interventions and increasing the stake in existing
targets. However, the finding that while the value invested in target stocks increases but the

18
fraction of a fund’s total stock portfolio value invested in target stocks does not suggests that
funds allocate new capital toward activism and non-activism holdings proportionally according
to the respective weight of the two types of holdings in the overall stock portfolio.

[Insert Table VIII here]

Table VIII Panel B reports the results conditional on funds having at least one on-going target.
Here, we see an economically and statistically stronger relationship between fund flow and the
number of targets held, the value of the target holdings, and the likelihood of maintaining
existing targets. In particular, we find a large increase in the average percentage of shares held in
existing targets (by 0.63% following a one standard deviation increase in fund flow), which
again suggests that activist hedge funds put new capital toward enhancing their position in
existing targets. One explanation for the difference between the conditional sample results (Panel
B) and the full sample results (Panel A) is that activism requires skills and opportunities in
addition to capital, in other words fund flow is unlikely to be the sole driver of activism.
Interestingly, the balance between activism and non-activism holdings in funds’ overall stock
portfolios still remains relatively unchanged for funds that are currently engaged in activism,
which lends support to the hypothesis that the extent to which funds engage in activism depends
on more than just the availability of capital.

In this section we show that capital flow does affect funds’ activism positions. Funds are more
likely to launch new interventions following large inflows of capital. When the inflow of capital
is relatively small, funds tend to increase investment in current targets. On the other hand, large
outflows of capital force funds to reduce their positions in existing targets or exit altogether. In
terms of the allocation between activism and non-activism holdings, funds tend to
disproportionally increase non-activism holdings following large inflows of capital. On the other
hand, while in the event of a large outflow of capital funds tend to liquidate both activism and
non-activism positions, they do so proportionally and so the ratio of the two is unchanged.

19
6. Conclusion

While it has been documented that activist hedge funds generates value for the equity investors
of the firms they target, in this paper we ask whether their own investors benefit from their
activism efforts. Is the previously documented superior performance of activist hedge funds
relative to the market and to their peers (comparable non-activist hedge funds) the result of their
ability to affect changes in target firm or the ability to simply hold the right stocks at the right
time? And how do activist hedge funds allocate new capital between activism and non-activism
holdings?

This paper answers these questions using a comprehensive dataset that combines activist hedge
funds’ public announcements of intervention (via Schedule 13D filings), a variety of their
characteristics from four major hedge fund databases, and their equity holdings from the
Thomson Reuters Institutional Holdings database. Importantly, this study is the first to compare
the returns to activism against the returns to the non-activism equity investments of the same
activist hedge fund. The findings documented here contribute to a more complete understanding
of the impact of hedge fund activism on market participants.

The dataset compiled for the purpose of this study can be used to study other characteristics and
behaviors of activist hedge funds. For example, it can be used to study the flow of information
between activist hedge funds and mutual funds belonging to the same fund family (e.g., à la
Nohel, Wang, and Zheng, 2010). It can also be used to test the predictive power of various hedge
fund performance covariates (e.g., à la Bollen, Joenväärä, and Kauppila, 2017), which may be
significant mainly for activist hedge funds or non-activist hedge funds but not both.

20
 Table I
Summary statistics

This table presents some summary statistics for our sample of activist hedge funds from January 1997 to
May 2012. Our sample covers 222 unique activist hedge funds and 1,022 unique target firms. Here and
after, “fund” refers to fund family. Panel A describes the number of unique target firms per activist hedge
fund. Panel B describes the holding period (in number of months) of target stocks. Panel C describes
activist hedge funds’ return, size and number of equity holdings. Return is the asset-weighted average
return of all the stocks held by an activist hedge fund, Abnormal Return is the asset-weighted average
difference between a stock’s raw return and the corresponding Fama-French size and book-to-market 25
portfolio return. Size is the total value of all the stocks held by the activist hedge fund. Panel D divides
the equity holdings of each activist hedge fund into three groups: Target, which consists of the stocks of
firms targeted by the activist hedge fund for intervention (identified by Schedule 13D filings); Block,
which consists of block holdings of non-target stocks (identified by Schedule 13G filings, which are
required when more than 5% of the outstanding shares of a firm is acquired without intent of
intervention); and Non-block, which is the remaining equity portfolio (or non-block holdings of non-
target stocks). For each group, summary statistics are reported for the number and the percentage weight
of stocks belonging to that group in the activist hedge fund’s overall equity portfolio.

Panel A. Number of unique target firms per activist hedge fund

N Mean Std Q1 Median Q3
222 5.40 10.42 1 2 5

Panel B. Holding period of target stocks (in number of months)

N Mean Std Q1 Median Q3
1252 35.20 36.41 11 23 44

Panel C. Activist hedge fund characteristics

N Mean Std Q1 Median Q3
Return (%) 22826 1.10 7.45 -3 1 5
Abnormal Return (%) 22368 0.41 4.21 -1.31 0.27 1.93
Size ($million) 22826 1,786.78 3,611.77 185.46 523.46 1,624.32
Number of stocks 22826 132.82 301.86 18 41 97

Panel D. Activist hedge fund equity portfolio

Group N Mean Std Q1 Median Q3
Target Number of stocks 22826 1.07 3.16 0 0 1
Portfolio weight 22826 6.91 15.84 0 0 4.78
Block Number of stocks 22826 4.30 10.26 0 2 4
Portfolio weight 22826 14.05 19.44 0 5.55 20.28
Non-block Number of stocks 22826 127.46 299.30 15 38 90
Portfolio weight 22826 79.04 25.81 68.61 89.60 99.34

21
 Table II
Activism versus non-activism performance: summary statistics

This table summarizes the return differences between the target and non-target holdings of the same
activist hedge fund. Specifically, we divide each activist hedge fund’s equity holdings in each month into
three groups and form an equally-weighted portfolio for each: Target, which consists of target stocks;
Block, which consists of block holdings of non-target stocks; and Non-block, which includes all other
equity holdings. First, for each activist hedge fund each month, we take the return of its Target portfolio
and subtract respectively the return of its Block portfolio and the return of its Non-block portfolio, where
Abnormal Return is measured as a stock’s raw return minus its corresponding Fama-French 25 size and
book-to-market portfolio return. We then pool across all funds and month for each pair-wise comparison.

Mean Median SD t N
Raw Return
Target – Block -0.20 -0.33 16.48 -1.02 6914
Target – Non-block 0.13 -0.46 13.45 0.89 8690
Abnormal Return
Target – Block -0.33 -0.49 16.76 -1.56 6241
Target – Non-block -0.07 -0.63 13.38 -0.44 8153

22
 Table III
Activism versus non-activism performance: time series

This table compares the return differences between the target and non-target holdings of the same activist
hedge fund, in the beginning versus later months of intervention. Specifically, we divide each activist
hedge fund’s equity holdings in each month into three groups: Target, which consists of target stocks;
Block, which consists of block holdings of non-target stocks; and Non-block, which includes all other
equity holdings. Next, we further divide the Target group into two subgroups: the stocks of target firms
still in the first X = 1, 3 and 6 month(s) of intervention or after in Panels A, B and C, respectively. An
equally weighted portfolio is formed for each Target subgroup and for the Block and Non-block groups.
First, for each activist hedge fund each month, we take the return of each of the two Target subgroup
portfolios and subtract respectively the return of its Block portfolio and the return of its Non-block
portfolio, where Abnormal Return is measured as a stock’s raw return minus its corresponding Fama-
French 25 size and book-to-market portfolio return. We then pool across all funds and month for each
pair-wise comparison.

Panel A: Return differences in the 1st month of intervention versus after

In the 1st month

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 1.70*** 17.4 3.22 1095 1.43*** 16.4 2.67 939
Target – Non-block 1.55*** 16.7 3.34 1305 1.24** 16.5 2.56 1158

After the 1st month

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.38* 16.4 -1.89 6604 -0.04 2.42 -0.48 5966
Target – Non-block -0.03 16.4 -0.24 8294 -0.13* 2.34 -1.87 7779

Panel B: Return differences in the first 3 months of intervention versus after

In the first 3 months

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 0.66* 17.1 1.68 1891 0.26 16.4 0.63 1617
Target – Non-block 0.66** 15.8 1.99 2294 0.28 16.3 0.82 2041

After the first 3 months

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.37* 16.4 -1.80 6271 -0.09 2.45 -1.49 5684
Target – Non-block -0.04 13.4 -0.28 7867 -0.18*** 2.43 -3.32 7387

23
 Panel C: Return differences in the first 6 months of intervention versus after

In the first 6 months

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 0.21 16.8 0.64 2736 0.01 16.4 0.02 2350
Target – Non-block 0.29 14.5 1.15 3365 0.02 14.2 0.07 3024

After the first 6 months

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.37* 16.4 -1.70 5814 -0.05 2.52 -0.89 5310
Target – Non-block 0.00 13.6 0.01 7259 -0.14*** 2.62 -2.93 6851

24
 Table IV
Activism versus non-activism performance: double sorting

This table compares the return differences between target and non-target holdings of the same activist
hedge fund, where target holdings are further double-sorted. Specifically, we divide each activist hedge
fund’s equity holdings in each month into three groups: Target, which consists of target stocks; Block,
which consists of block holdings of non-target stocks; and Non-block, which includes all other equity
holdings. Within the Target group, we isolate the stocks of target firms still in the first three months of
intervention and then further divide this subgroup, in Panel A based on whether the target firm represents
the activist hedge fund’s first intervention, which we call its “starter” target, or a subsequent intervention,
which we call “later” target; in Panel B based on whether the activist hedge fund is holding a high or low
number of stocks in the same industry as the target; and in Panel C based on whether the activist hedge
fund has a high or low percentage of its overall equity portfolio value invested in the stocks in the same
industry as the target. An equally weighted portfolio is formed for each double-sorted Target subgroup
and for the Block and Non-block groups. First, for each activist hedge fund each month, we take the return
of a double-sorted Target subgroup portfolio and subtract respectively the return of its Block portfolio and
the return of its Non-block portfolio, where Abnormal Return is measured as a stock’s raw return minus
its corresponding Fama-French 25 size and book-to-market portfolio return. We then pool across all funds
and months for each pair-wise comparison.

Panel A: Starter versus later target

Starter target
Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.36 18.8 -0.33 298 -1.16 19.5 -0.94 249
Target – Non-block 0.38 13.7 0.56 410 0.14 13.6 0.20 364

Later target
Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 0.83** 16.7 1.99 1610 0.49 15.7 1.17 1383
Target – Non-block 0.73** 16.2 1.97 1912 0.34 15.6 0.89 1701

Panel B: Number of Stocks Held in Target Industries

High number of stocks

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 0.94** 17.9 2.06 1567 0.60 14.3 1.27 1340
Target – Non-block 1.08*** 15.3 3.06 1894 0.75** 16.5 2.11 1684

25
 Low number of stocks
Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.20 17.2 -0.35 630 -0.51 14.2 -0.83 528
Target – Non-block -0.18 14.6 -0.29 740 -0.59 16.9 -0.88 641

Panel C: Weight of equity portfolio value invested in target industries

High percentage of equity portfolio value

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block 0.88* 17.9 1.93 1547 0.57 17.3 1.20 1325
Target – Non-block 1.05*** 15.4 2.95 1875 0.74** 14.7 2.07 1668

Low percentage of equity portfolio value

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.13 14.6 -0.24 655 -0.46 14.1 -0.77 552
Target – Non-block -0.18 16.5 -0.30 765 -0.53 16.8 -0.82 667

26
27
 Table V
Activism versus non-activism performance: value-weight portflios

This table compares the contribution of target and non-target holdings to the overall equity portfolio
return of the same activist hedge fund. Specifically, we divide each activist hedge fund’s equity holdings
in each month into three groups and form a portfolio for each: Target, which consists of target stocks;
Block, which consists of block holdings of non-target stocks; and Non-block, which includes all other
equity holdings. For each activist hedge fund each month, in Panel Awe form a portfolio for each of the
three groups; in Panel B, from the Target group, we isolate the stocks of target firms still in the first
month of intervention and the stocks of target firms still in the first three months of intervention; and in
Panel C, of the latter target subgroup, we further isolate the stocks of target firms belonging to industries
in which the activist hedge fund is heavily invested, in terms of the number of stocks and portfolio
weight, respectively. We take the value-weighed return of the activist hedge fund’s Target group portfolio
(Panel A), Target subgroup portfolio (Panel B) and Target double-sorted subgroup portfolio (Panel C)
and subtract respectively the value-weighted return of its Block portfolio and that of its Non-block
portfolio. We then pool across all funds and months for each pair-wise comparison.

Panel A: Pooled analysis

Raw return Abnormal return

Mean SD t N Mean SD t N
Target – Block -0.14*** 3.55 -3.39 6914 -0.08** 2.91 -2.26 6241
Target – Non-block -0.46*** 5.23 -8.14 8690 -0.18*** 3.35 -4.96 8153

Panel B: sorting by First Few Months

First Month
Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.07 2.81 -0.86 1095 -0.47** 16.8 -2.15 939
Target – Non-block -0.54*** 4.54 -4.32 1305 0.22 13.3 -1.47 1158

First three Months

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.12* 2.96 -1.71 1891 -0.43* 16.7 -1.93 1617
Target – Non-block -0.58*** 4.38 -6.32 2294 -0.21 13.3 -1.33 2041

28
 Panel C: Double Sorting (by first 3 months and industry of activism targets)

High Industry No. of Stocks Held in Industries of Activism Targets

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.07 2.90 -0.98 1567 -0.08 2.31 -1.21 1340
Target – Non-block -0.61*** 4.46 -5.94 1894 -0.18*** 2.40 -3.11 1684

High Asset Weight in Industries of Activism Targets

Raw return Abnormal return
Mean SD t N Mean SD t N
Target – Block -0.07 2.91 -1.00 1547 -0.07 2.32 -1.18 1325
Target – Non-block -0.60*** 4.46 -5.80 1875 -0.18*** 2.41 -2.98 1668

29
 Table VI
Activism versus non-activism performance: regression analyses

This table reports results from the regression analyses of factors that potentially explain the return
differences between an activist hedge fund’s target and non-target holdings. The dependent variable in
each column is the return of the Target group portfolio minus either the return of the Block portfolio or
the return of the Non-block portfolio. Explanatory variables include indicator variable First 3 Months,
which equals one if activist hedge fund i’s intervention has not surpassed three months as of month t;
indicator variable First Target, which equals one if activist hedge fund i has an ongoing intervention for
the first time in month t; Past Activism Experience, which is the number unique firms targeted by activist
hedge fund i as of month t. In all regressions, we control for fund fixed effects and year fixed effects and
cluster standard errors at the fund level and the year level. Parentheses enclose t-statistics, and ***, **,
and * denote 1%, 5% and 10% statistical significance, respectively.

Raw returns
(1) (2) (3) (4)
Target - Block Target – Target - Block Target –
Non-block Non-block
First 3 Months 1.0825** 0.6236 1.0582** 0.5836
(2.25) (1.45) (2.26) (1.33)
First Target -0.3531 0.6718
(-0.33) (0.99)
Asset Weight in Activism -0.0960*** -0.0434*** -0.0998*** -0.0467***
(-3.05) (-3.31) (-3.14) (-3.59)
No. of Stocks in Activism 0.1978 -0.0267 0.2166 -0.0016
(0.88) (-0.21) (0.86) (-0.01)
No. of Industries in Activism -0.2755 0.0399 -0.1688 0.0536
(-0.95) (0.19) (-0.57) (0.25)
Past Activism Experience -0.0654* -0.0215
(-1.96) (-0.56)
Log Lagged Family Size 0.1236 0.2254 0.0685 0.1426
(0.21) (0.61) (0.12) (0.37)
Log Number of Stocks -0.0108 -0.1077 0.0823 -0.1033
(-0.00) (-0.11) (0.04) (-0.10)
Log Number of Industries -0.5480 -0.0587 -0.7060 -0.0885
(-0.22) (-0.06) (-0.29) (-0.08)
Year FE Yes Yes Yes Yes
Family FE Yes Yes Yes Yes
N 6914 8690 6914 8690
Adj. R2 0.0093 0.0056 0.0095 0.0056

30
 Abnormal returns
(1) (2) (3) (4)
Target - Block Target – Target - Block Target –
Non-block Non-block
First 3 Months 0.8820 0.5005 0.8800 0.4597
(1.57) (1.12) (1.55) (1.00)
First Target -0.6943 0.6886
(-0.57) (0.91)
Asset Weight in Activism -0.1061*** -0.0293** -0.1073*** -0.0320**
(-2.92) (-2.23) (-2.92) (-2.34)
No. of Stocks in Activism 0.3822 -0.0096 0.3851 0.0085
(1.45) (-0.07) (1.32) (0.07)
No. of Industries in Activism -0.4733 0.0200 -0.3777 0.0291
(-1.42) (0.10) (-1.13) (0.13)
Past Activism Experience -0.0507 -0.0146
(-1.32) (-0.39)
Log Lagged Family Size 0.3686 0.3315 0.3638 0.2594
(0.50) (0.79) (0.52) (0.60)
Log Number of Stocks 0.5975 -0.3662 0.6839 -0.3562
(0.22) (-0.26) (0.25) (-0.25)
Log Number of Industries -1.8179 0.3124 -1.9603 0.2840
(-0.70) (0.20) (-0.74) (0.18)
Year FE Yes Yes Yes Yes
Family FE Yes Yes Yes Yes
N 6241 8153 6241 8153
Adj. R2 0.0057 0.0023 0.0058 0.0022

31
 Table VII
Overall equity portfolio performance: regression analyses

This table reports results from the regression analyses of factors that potentially explain an activist hedge
fund’s overall equity portfolio return. The Activism indicator variable equals one if activist hedge fund i
has at least one ongoing intervention in month t and zero otherwise. The other explanatory variables are
as defined in Table VI. In all regressions, we control for fund fixed effects and year fixed effects and
cluster standard errors at the fund level and the year level. Parentheses enclose t-statistics, and ***, **,
and * denote 1%, 5% and 10% statistical significance, respectively.

Raw returns Abnormal returns

(1) (2) (3) (4)
Activism 0.2923** 0.2233** -0.0233 -0.0754*
(2.21) (2.06) (-0.31) (-1.92)
First 3 Months Dummy 0.2939 0.2222*
(1.16) (1.65)
Log Lagged Family Size -0.7273*** -0.7274*** -0.3883*** -0.3884***
(-4.74) (-4.74) (-3.37) (-3.36)
Log Number of Stocks 1.3314*** 1.3176*** 0.6992*** 0.6885***
(3.87) (3.81) (2.82) (2.79)
Log Number of Industries -0.8677* -0.8621* -0.6713** -0.6670**
(-1.85) (-1.83) (-1.98) (-1.97)
Year FE Yes Yes Yes Yes
Family FE Yes Yes Yes Yes
N 22826 22826 22804 22804
Adj. R2 0.0833 0.0834 0.0205 0.0207

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 Table VIII
Capital flow and activism holding: regression analyses

This table reports results from the regression analyses of how capital flow affects an activist hedge fund’s investment in activism. The dependent
variable in each column measures the extent to which an activist hedge fund is invested in activism. The explanatory variable Fund flow is activist
hedge fund i’s capital flow in time t as a percentage of its size. Panel A shows the results for the full sample, and Panel B shows the results for the
subsample of activist hedge fund-quarters with at least one on-going intervention. In all regressions, standard errors are clustered at the fund level.
The even (odd) numbered columns represent regressions with (without) fund fixed effects. Parentheses enclose t-statistics, and ***, **, and *
denote 1%, 5% and 10% statistical significance, respectively.

Panel A: Full sample

Total Number Total Value of Maintaining Average Percentage of Fraction of Active to

of Targets Activism Shares Held Existing Target Shares of Target Held Total Stock Holding
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Fund flow 0.582** 0.461* 3.877** 3.369** 0.148** 0.136** 0.560 0.085 1.636 0.955
(2.527) (1.882) (2.313) (1.998) (2.603) (2.215) (1.258) (0.175) (1.522) (0.828)
Family size 0.025 0.205 -0.005* 0.004 0.007
(1.082) (1.321) (-1.727) (0.171) (0.182)
Family age -0.006*** -0.010 0.000 -0.015*** -0.016**
(-2.883) (-1.226) (0.189) (-4.600) (-2.385)
No. of funds 0.001 -0.096 0.014*** 0.021 -0.022
(0.076) (-1.240) (2.807) (0.698) (-0.453)

Fund FE NO YES NO YES NO YES NO YES NO YES

R2 0.006 0.044 0.004 0.024 0.004 0.100 0.000 0.026 0.001 0.040
N 2682 2682 2682 2682 2682 2682 2682 2682 2682 2682

33
 Panel B: Conditional on Already Engaging in Activism

Total Number Total Value of Maintaining Average Percentage of Fraction of Active to

of Targets Activism Shares Held Existing Target Shares of Target Held Total Stock Holding
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

HF flow 1.437*** 1.047** 8.397** 6.642* 0.313*** 0.279** 2.301** 1.640* 3.727 2.162
(3.104) (2.027) (2.359) (1.770) (2.823) (2.038) (2.634) (1.765) (1.552) (0.785)
Family size 0.121 0.876 -0.003 -0.148* -0.187
(1.227) (1.406) (-0.160) (-1.846) (-0.696)
Family age -0.022*** -0.046* -0.002 -0.054*** -0.068**
(-5.130) (-1.807) (-0.980) (-2.790) (-2.338)
No. of funds 0.016 -0.014 0.022** 0.083 0.058
(0.411) (-0.072) (2.153) (1.021) (0.448)

Family FE NO YES NO YES NO YES NO YES NO YES

R2 0.015 0.083 0.007 0.040 0.011 0.122 0.004 0.155 0.002 0.054
N 1138 1138 1138 1138 1138 1138 1138 1138 1138 1138

34
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