Table 5

PSM and difference-in-difference estimation

Panel A: Probit regression to match hedge fund activism firms with control firms
(1)
Probit (hedge fund intervention)
ROA t−1−0.328 (−1.565)
Leverage t−1−0.222 (−1.172)
Sizet−1−0.100*** (−2.644)
Tobin Q t−1−0.055* (−1.682)
Sales growth t−1−0.000 (−0.011)
Payout yield t−1−0.020 (−0.018)
R&D t−1−0.264 (−0.710)
Institution t−10.697*** (4.319)
Analyst following t−1−0.006 (−0.691)
Segment HHI t−1−0.014 (−0.050)
Tangibility ratio t−10.200** (2.037)
Constant−1.790*** (−8.037)
Adjusted R20.033
Industry- and year-fixed effectsYes
Observations20,060
Note(s): This panel reports the results of a probit regression used to estimate the propensity that a firm will be targeted by an activist hedge fund. The model and control variables are comparable to those used by Brav et al. (2008a, b), where various covariants explaining the propensity of hedge fund activist interventions are determined. We use these results to match targeted firms to non-targeted firms by utilizing an estimated PSM procedure
Panel B: Differences in firm fundamentals between treatment and control firms
VariableTreatmentControlDifferenceT value
ROA t−1−0.0020.018−0.020−0.870
Leverage t−10.1670.168−0.002−0.060
Sizet+15.9886.316−0.329−1.740*
Tobin Q t−11.6291.786−0.157−1.120
Sales growth t−10.2400.0680.1721.030
Payout yield t−10.0120.0070.0051.540
R&D t−10.0640.067−0.003−0.240
Institution t−10.7130.745−0.032−1.020
Analyst following t−16.2767.158−0.882−1.180
Segment HHI t−10.3370.379−0.042−1.630
Tangibility ratio t−10.5140.4340.0801.790*

Note(s): Panel B tabulates the differences in characteristics between firms that are targeted by hedge fund activists (treatment firms) and nontargeted firms (control firms) that are matched using propensity scores based on the Probit model in Panel A. For each treatment firm year, we find three matched control firms

Panel C: Differences in changes in internal control weaknesses between targeted and control firms
VariableTreatmentControlDifferenceT value
Change ICWt−1,t+10.034−0.0450.0792.280**
Change ICWt+1,t+4−0.0540.011−0.065−3.050***

Note(s): Panel C tabulates the differences in reported internal control weaknesses between firms that are targeted by hedge fund activists (treatment firms) and nontargeted firms (control firms) that are matched using propensity scores based on the Probit model in Panel A. For each treatment firm year, we find three matched control firms. The variables under comparison are the change in internal control weaknesses from t−1 to t+1 and change from t+1 to t+4, where t is the year of the activism event

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