Shareholder Power and Corporate Innovation：Evidence from Hedge Fund Activism.pdfVIP

Version: March 2014 Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism a,b c d Alon Brav , Wei Jiang , and Xuan Tian a Duke University, Durham, NC 27708 b National Bureau of Economic Research, Cambridge, MA 02138 c Columbia University, New York, NY 10027 d Indiana University, Bloomington, IN 47405 The authors have benefited from comments from and discussions with Sharon Belenzon. Alon Brav can be reached at phone: (919) 660-2908, email: brav@. Wei Jiang can be reached at phone: (212) 854-9002, email: wj2006@. Xuan Tian can be reached at phone: (812) 855-3420, email: tianx@. Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism Abstract We examine whether hedge fund activism affects corporate innovation. We find that firms targeted by hedge fund activists experience an improvement in innovation efficiency within three years after the intervention as evidenced by a significant drop in RD spending but an increase in innovation output measured by both patent counts and citations. We then show that hedge fund activists improve target firms’ innovation efficiency via the reallocation of innovative resources and the redeployment of human capital. Finally, we show that the link between hedge fund interventions and improvements in innovation efficiency is potentially driven by firms’ assets reallocation triggered by activists. Our paper is the first