Christopher P. Skroupa: There has been extensive academic debate about whether activists create or destroy corporate value. What is the state of the evidence on this question?
Robert J. Jackson: While the weight of the evidence suggests that activism enhances, rather than destroys, long-term value, the question is far from resolved. One recent study found that the short-term value increases associated with activists’ 13D filings are sustained over a period of several years. Another paper, however, has indicated that those findings may simply be the product of a selection effect—that is, that hedge funds are simply good at finding firms that will soon improve their operations and hence their value. Researchers, policymakers, corporate directors and their counsel are still searching for decisive evidence on whether hedge fund activism is good or bad for long-term value creation.
Skroupa: What are the best arguments on each side about the effects of activists on long-term value?
Jackson: The strongest argument in favor of hedge-fund activism has been advanced by Lucian Bebchuk, who has forcefully contended that activists discipline corporate managers. In a world where the poison pill makes hostile takeovers nearly impossible, he argues, the threat of an activist attack, and the proxy fight that often comes with it, is the only way to ensure that corporate managers act in shareholders’ interests.