Abstract
Corporate governance interventions by hedge fund shareholders are triggering debates between advocates of management empowerment and advocates of aggressive monitoring by actors in the capital markets. This Article intervenes with an empirical question: What, based on the record so far, have the hedge funds actually done to their targets? Information has been collected on 130 domestic firms identified in the business press since 2002 as targets of activist hedge funds, including the funds' demands, their tactics, and the results of their interventions for the targets' governance and finance. The survey results show that the hedge funds have an enviable record success in getting targets to accede to their demands, using the proxy system with remarkable, perhaps unprecedented, success. If the pattern of intervention persists in time, expands its reach, and maintains the present high level of governance success, then the separation of ownership and control becomes a less acute problem for corporate law. But such a change will occur only to the extent that clear cut financial incentives encourage an expanded field of intervention. To get a sense of the sample's bearing on the question as to such incentives' existence, returns from hedge fund engagement with the sample firms are compared to returns from market indices. The results are mixed. The answer to the question whether the activists have beaten the market depends on the assumptions one brings to the comparison. But it at least can be argued that the hedge funds have not beaten the market respecting the targets in the sample. A question accordingly arises respecting the depth and durability of any shift in the balance of corporate power stemming from hedge fund activism. Meanwhile, the financial results also show that hedge fund activism is a more benign phenomenon than its critics would have us believe. Hedge fund interventions neither amount to near-term hold ups nor revive the 1980s leveraged restructuring. Short term investments are rare. Large cash payouts have been made by only a minority of the firms surveyed, and borrowing has been the mode of finance in only a small minority of the payout cases.