Did they live happily ever after? The fate of restructured firms after hedge fund activism

Abstract

This paper studies the long-term effect of hedge fund activism on distressed firms by tracing the post-emergence performance of firms that successfully resolved distress. We find that the firms restructured with hedge funds' intervention, compared to their counterparts that emerged without such intervention, are more likely to lose their public status, enjoy higher financial stability, and invest more. Notably, the gap in financial strength lasts at least 3 years after emergence. These findings suggest that the efficiency gains brought by hedge fund activism during the restructuring process tend to positively impact the restructured firms' financial soundness in the post-intervention period.