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Why US Firms Use More Long-Term Debt Post Activist Interventions?

We find that US firms increase their use of long-term debt after hedge fund activism (HFA). This increase in long-term debt is not correlated to hedge funds’ private benefit extraction but is associated with target firms’ post-HFA corporate governance reforms. Our analysis of new debt issuances shows that the increased debt maturity is related to targets’ increased reliance on long-term public debt and it is not influenced by supply-side constraints. Overall, our findings indicate that post-HFA, target firms substitute their creditor-driven governance with a governance mechanism influenced by activist hedge funds.