What do activist hedge funds accomplish?

Activist hedge funds buy up chunks of underperforming companies and start rattling the cages demanding change. But do they really create value by getting companies and their managers to perform better?

Research by Harvard Business School professor Robin Greenwood and his co-author, Michael Schor, indicates the answer is yes, but only sometimes. They studied investments by activists hedge funds over a period from 1993 to 2006.

Greenwood and Schor say hedge funds don't force operational improvements at companies very often. Instead, they create shareholder value by putting companies in play as potential merger or acquisition targets. They say the relatively short investment horizon of hedge funds make them ineffective "unsuitable overseers of management."

You can read a summary of their research here. You can go here to download a copy of the entire report from the Social Science Research Network.