Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Abstract

This paper analyses the impact of activist hedge funds (AHFs) on post-merger workforce downsizing and operating performance. AHFs have been widely criticized for achieving short-term gains at the expense of other stakeholders, such as employees. The results show that AHF ownership and presence in acquiring firms is a significant determinant of post-merger employment reductions. There is little evidence that these mergers and acquisitions have better operating performance relative to other takeovers. However, there is a negative effect of AHF ownership on labour productivity. Overall, the results are consistent with the view that AHF involvement in takeovers does not lead to sustained gains in performance. 1 In 2015, Trian owned a 7.2% stake in Pentair plc and urged the company to increase value by facilitating 'prudent industry consolidation'. In that year, Pentair acquired a privately held component manufacturer for $1.8 billion in cash. In 2017, Pentair sold a valves and controls business it had acquired a few years earlier for $3.2 billion and decided to split its largest businesses, electrical and water products, into two separate companies (The Deal Pipeline, 2017).

What Makes Fund Managers Leave Their Jobs Faster?

“…Therefore, it is hardly surprising that practitioners and policymakers demonstrate an avid and unabating interest in studying this phenomenon (e.g. Bali, Brown and Caglayan, 2019;Baquero and Verbeek, 2022;Chen, Han and Jing, 2021;Kuvandikov, Pendleton and Georgen, 2022), and that it attracts so much attention from the research commu- nity (Cheema and Nartea, 2014;Cornell et al 2020;Xu et al, 2013).…”