The Color of Hedge Fund Activism

The racial disparity in mortgage approval rates decreases by four percentage points as a result of hedge fund activism targeting banks. Target banks experience a higher turnover of mortgage officers and open new bank branches in areas with greater racial disparities in mortgage approval rates. We show that the results are driven by hedge fund activists’ efforts to increase profitability and comply with the community reinvestment act. Our results suggest that hedge funds’ incentives to maximize shareholder value do not necessarily lead to a negative impact on other stakeholders. This paper was accepted by Victoria Ivashina, finance. Funding: This work is financially supported by the Key Program of National Natural Science Foundation of China [NSFC Grant Number 72233003] and the General Program of National Natural Science Foundation of China [NSFC Grant Number 72372517]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.03452 .