Hedge fund activism is a new form of investment strategy. Using a large
hand-collected dataset from 2001 to 2006, we find that activist hedge funds in
the United States propose strategic, operational, and financial remedies and
attain success or partial success in two-thirds of the cases. The abnormal stock
return upon announcement of activism is approximately 7 percent, with no
reversal during the subsequent year. Target firms experience increases in payout
and operating performance and higher CEO turnover after activism. We find large
positive abnormal return to hedge fund activists, which is higher than the
return to other equity-oriented hedge funds.