Activism Pressure and the Market for Corporate Assets

We investigate the impact of hedge fund activism on corporate transaction markets. We find that activism targets as well as firms exposed to hedge fund threats increase divestitures and receive more merger bids. On balance, they also make fewer acquisitions, but this effect is entirely due to large firms. Activism targets and firms under hedge fund threats contribute about equally to the overall effect. We estimate that the increase in sales and reduction in purchases of assets reduces real asset liquidity by about 35% for asset sellers in industries with strong activist activity. The liquidity squeeze produces two effects: industry outsiders provide liquidity by purchasing more industry assets, and transaction prices are reduced. We find that activism positively affects the efficiency of divestitures and of acquisitions by small firms when firms are activism targets, but not when they act under activism threat.