Hedge fund activism, innovation and firm value

Using an endogenous growth framework, this thesis models and tests whether hedge fund activists add value by correcting inefficient R&D investment at their targets. While activists are more likely to target firms over-investing in R&D, I find no evidence that suggests they correct inefficient R&D investment despite decreasing R&D expenditure at target firms. Further robustness highlights the negative impact of hedge fund activism on value creation after controlling for the activist’s stated objectives and reputation, quantile treatment effects, and superior stock selection ability. Overall, my research offers new insights into the governance role and value implications of hedge fund activism.