We investigate the effects of activist investors on firm acquisitions, where activist investors include both hedge fund activists and entrepreneurial activists (venture capital funds, private equity funds, and individual investors). For completed deals, acquirers with activist investors experience significantly higher announcement cumulative abnormal returns compared to acquirers without activist investors. In addition, acquirers with activist investors are more likely to withdraw from value‐destroying transactions. Furthermore, the market reacts more favorably to acquirers with activists than to those without activists when these value‐destroying transactions are withdrawn. Our results highlight the role of activist investors in aligning managers’ and shareholders’ interests in acquisition decisions.
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