Does hedge fund activism harm corporate social performance? Evidence from ESG ratings1

Abstract

We reexamine the impact of hedge fund activism on corporate social performance as measured by ESG ratings. Using a high-quality dataset on hedge fund activism, we find that the impact of hedge fund activism on ESG ratings is neither statistically nor economically significant. In our preferred model, relative to control firms, the ESG ratings of target firms increase by 0.033, about 1.6 % of the sample standard deviation, following activist interventions. In addition, we find no evidence that stock market reactions to the announcement of activist interventions are significantly higher for firms with high ESG ratings, inconsistent with the view that hedge fund activism harms corporate social performance to benefit shareholders.