This study presents novel, robust evidence on the effect of price impact of trading, or Kyle’s lambda, on activist hedge funds’ predisclosure ownership accumulations. 1 We find that hedge fund investors are less likely to target illiquid firms; upon targeting an illiquid firm, activists choose private transactions to limit the price impact of their trades; upon doing open market transactions, the activist investors buy more shares of those firms with liquid stock. Our study suggests that market impact can be a factor with significant implications for shareholder activism, and more generally, corporate governance.