The number of short campaigns by hedge funds has dramatically increased over the last two decades. Nearly 80% of campaigns are undertaken by activist hedge funds, particularly those that employ hostile tactics in their long campaigns. Short campaigns are associated with negative abnormal returns of –7%, with aggregate valuation effects similar in magnitude to the gains from long activism campaigns. In contrast to long campaigns, public communication is a critical component of short campaigns. We do not find evidence that such communication is manipulative. Overall, our analysis highlights the importance of short campaigns for understanding the economic impact of activist hedge funds.

We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to seek board representation when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights, settlements, and a higher likelihood the activist achieves board representation or the sale of the targeted company. Our findings suggest that the recent growth of passive institutional investors mitigates free-rider problems and facilitates activists’ ability to engage in costly, value-enhancing forms of monitoring. Received September 28, 2016; editorial decision August 18, 2018 by Editor Andrew Karolyi.