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We investigate the impact of hedge fund activism on corporate transaction markets. We find that activism targets as well as firms exposed to hedge fund threats receive more merger bids, increase divestitures and make fewer acquisitions, with the acquisition effect concentrated among large firms.
We document that the majority of activist campaigns are clustered by industry, and estimate that the simultaneous increase in asset sales and decrease in acquisitions in such activism clusters reduce real asset liquidity for asset sellers by about 35%. The liquidity squeeze produces two effects: transaction prices are reduced, and industry outsiders provide liquidity by purchasing more industry assets. Looking at short-term price pressure and long-run performance We present evidence that transactions by activist targets are less affected by the reduced asset liquidity than those of other firms.
The firms listed on the stock market in aggregate contribute less to total non-farm employment and GDP now than in the 1970s. A major reason for this...