The Role of the Media in Hedge Fund Activism

Abstract

Using a large set of hedge fund 13D filing and news data for the period of 2000 to 2019, we document that firms with more negative media sentiment are more likely to be targeted by hedge funds. The media sentiment of target firms reverts to normal level after the 13D filing dates. Our analysis of media sentiment for different corporate events shows that event-specific media sentiment is associated with the specific objectives of activism campaigns. The firm’s fundamental information captured by media sentiment drives the hedge fund targeting event and such targeting generates higher long-term stock returns. Our findings suggest that negative public perception is a key factor driving activists' selection of targets.