Finance and Accounting Research Seminar - Rui Albuquerque (Boston College - "Learning about activism skill"

We propose a model in which an investor is uncertain about her activism skill and learns about it over time by engaging in activism. At the core of the model is a dynamic value of learning: every undertaken activism campaign leads to a gain due to learning about activism skill. Using data on 3,597 activism campaigns undertaken by 650 hedge funds, we document several empirical facts that are consistent with the learning mechanism. Hedge funds are more likely to stop engaging in activism if they are less experienced or following poor campaign performance. Take-up rates decline in fund experience, and increase in past performance. The learning mechanism predicts that target-firm shareholders prefer to be targeted by more experienced activists rather than less; we estimate the experience premium to be 5%.