In the recent announcement of the winners of the 2018 Jensen Prizes, the paper How does Hedge Fund Activism Reshape Corporate Innovation co-authored by Professor Tian Xuan, Associate Dean and JD Capital Chair Professor of Finance at PBCSF was selected as the first-place winner. This is the second time that Professor Tian wins the Prize since 2012 as an independent author.

The Jensen Prizes is held annually for the best research papers on corporate finance published in the Journal of Financial Economics for the year. The winners are voted by the readers of the journal, as well as scholars and industry experts.

The award winning paper How does Hedge Fund Activism Reshape Corporate Innovation addresses the issue of the long-held doubts on the motivations of hedge fund activism among the industry and academia by studying how hedge funds intervenes corporate innovation.

Through comparison, analysis and tests on the research status of the corporation with/without hedge fund intervention, the research team found that though the intervention of the hedge funds tightens corporate R&D expenditure, it significantly improves the efficiency of the R&D investment. Despite the original intention of the hedge fund intervention is to gain more self-interest, hedge fund activism does promote corporate innovation investment and improve innovation efficiency.

In order to explain how hedge fund intervention improves R&D efficiency and reshapes corporate R&D strategies, the paper analyzes and elaborates the impacts of hedge funds on corporate innovation from four perspectives – new innovation investment, existing patents and achievements allocations, innovation output of the talents, and corporate management.

From the innovation investment perspective, the enterprises are more inclined to focus on core technologies after the hedge fund intervention, thus improve the efficiency of R&D. From the patents and achievements perspective, after the hedge fund intervention, the enterprises usually bulk sell the patents which are not in their key business areas. The patents and achievements will be relocated to enterprises whose major business are more aligned with the patents, therefore optimize the allocation of the patent assets. Furthermore, the active intervention of hedge funds also makes positive contributions to corporate personnel and human resources allocations. It will help enterprises to utilize their human capital and assets, improving innovation output of the talents. The research team also found that hedge fund intervention creates a closer link between the interests of the management team and stakeholders, which also improves the enterprise management level and innovation efficiency.