Does Experience Matter for Hedge Fund Managers ? Effects of Industry Expertise on Hedge Fund Activism

In this paper, we examine whether hedge fund managers’ experience affects their activism. We find that hedge fund managers are more likely to choose a target that operates in an industry in which they have previous executive and/or outside director experience. Compared to target firms in which hedge fund managers do not have target industry experience, those in which hedge fund managers have target industry experience realize higher abnormal announcement returns and these managers are more likely to serve as a director on the target’s board. We further find a significant improvement in target post-acquisition operating performance when hedge fund managers have executive experience in the target industry. These findings suggest that a hedge fund manager’s industry expertise is an important source of value gains in hedge fund activism. JEL Classification: G14, G23, G30, G34