Activist Hedge Fund Success: The Role of Reputation

The growing visibility and aggressive tactics by some activist hedge funds raises the question of what determines whether these activist campaigns are successful. We propose that the reputation of the activist hedge fund is likely to play a role in explaining their success. Specifically, we investigate and find that activist hedge funds that signal a reputation for being confrontational based on prior proxy fights are more likely to be successful in achieving their intentions in an activist campaign. In addition, we find that the effect of reputation on activist hedge fund success is greater when the activist hedge is the sole activist in the campaign and when they target firms with high performance. Our study contributes to our understanding of activist hedge funds by examining how reputation may impact their success or failure.