Hedge Fund Activism and Debt Maturity Structure

ABSTRACT We provide evidence that activist hedge funds significantly influence target firms’ debt choices. After hedge fund activism (HFA), the proportion of long‐term debt significantly increases in target firms. This debt maturity increase is correlated to post‐HFA governance reforms. Post HFA, target firms issue more bonds than loans; such preference for bonds explains the increase in targets’ debt maturity. Our findings indicate that target firms substitute their short‐term creditor‐driven governance with a governance mechanism influenced by activist hedge funds.