A new study, with no connection to Marty Lipton, shows that shareholder activists are bad news for employees of targeted firms

According to a recently published study by researchers at Duke, Columbia and Cornell, firms that have been targeted by shareholder activists show a clear trend toward improvement of production efficiency in the three years after an activist intervention. By the same token, the study also confirms that “employees of target firms experience a reduction in work hours and stagnation in wages despite an increase in labor productivity.”

Shareholder activism leads to improved productivity and ROA at target firms


Authors Alon Brav, Wei Jiang, and Hyunseob Kim undertook a thorough review of the impact of shareholder activism based on a sample of close to 2,000 activism events in the U.S. from 1994 to 2007. The results of their study make it clear that shareholder activists do an average “create value” for shareholders through their actions.

Brav et al. note: “Figure 1 plots the target firms’ average return on assets in excess of that of a control group—where the control group consists of firms in the same three-digit SIC industry and year, and is adjusted for firm size and age—from three years before to three years after the public announcement of activism. There is a clear “V” shaped pattern centered on the year of intervention, and the level in the third year post intervention is significantly higher than that during the year of intervention or the year prior to intervention.”


In terms of productivity, the productivity of plants owned by firms targeted by activists changes over time much like ROA. Three years before the activism, the productivity of target firms’ plants is slightly higher than a set of control plants. The productivity of firms eventually deteriorates to a level similar to that of the control plants around the time intervention occurs, but then three years after activist event, the productivity of the targeted plants is greater than that of the control plants.

The authors also note that the “improvement in production efficiency associated with hedge fund activism is more pronounced when the activist targets operational issues, such as business strategies or asset sales, relative to when the activist targets general undervaluation or capital structure issues.”

They also note that shareholder activists create value is by enabling a more efficient reallocation of corporate assets. Among the sample of plants that were sold after hedge fund activism, these plants exhibit lower productivity than control plants before the sale, but then see a major improvement in productivity under new ownership.

Labor receives little to no benefit from improved productivity

Brav et al. also highlight that although labor productivity improves significantly after an activist event, employees experience a decline in work hours and stagnation in wages following the activism.

It turns out that shareholder activism is really about the same old story…the rich get richer. The authors note: “The improvement in labor productivity coupled with relatively stable wages indicates that workers do not fully capture the value of productivity improvements, but instead relinquish most of the surplus to equity investors after hedge fund intervention.”

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