This is also shown in the fact that following an activist campaign, firms sell an unusual number of existing patents. Not only that but these patents they sell then go on to get cited more when they belong to their new owners. This implies not just that the capital gained by selling the patents may be better deployed by the firms doing the selling, but that the firms doing the buying are able to make better use of the intellectual property, perhaps because it is in an area in which they are themselves more vital and competitive. So not only do activists improve innovation at the firms they target, they may be setting off a virtuous circle of better allocation and better innovation at other firms with which they do business.
This improvement extends beyond a company's patent bank to its human resources. The study was able to track the productivity of inventors who stay at firms, those who leave and those who are hired after a hedge fund campaign.
"The inventors retained by target firms are more productive than 'stayers' at non-target peers; the inventors who leave following hedge fund intervention are more productive with their new employers; and finally, the inventors newly hired post-intervention are of similar productivity at the new firm," according to the paper.
Again, improvements in outcome all round, not just at the target firm.
Finally, the paper looked at whether any of this might be the result of sample bias: the idea that hedge funds do a good job of stock picking firms which are ripe to register these kind of improvements on their own. Two factors suggest that activists should get some of the credit. First, when they file a 13D form with the SEC, denoting an activist position, target firm performance improves, as does the value the stock market places on new patents.
None of this is to say that activists don't have their own agendas and can sometimes harm the long-term productivity of firms.
On the evidence, though, it looks like they should be welcomed. (At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.