Does Intensified Communication of Hedge Funds With Letters Affect Abnormal Returns?

Hedge funds go beyond their statements on the transaction purpose in the beneficial ownership report Schedule 13 D by stating their activism objectives additionally in a letter to the CEO or board in more than one of ten activism events. Reactance theory indicates that the separate communication channel might be initially value-decreasing. Our results reveal that intensified communication itself is not the reason for market reactions. Hedge funds address more activism goals when they attach a letter. Thus, activism-related letters are related to higher abnormal returns. Our analysis provides new evidence how intensified communication of hedge funds affects stock markets