Professor Elia Ferracuti explains how activist investors reshape corporate research, and why it matters for long-term innovation.

Why would a company famous for breakthrough discoveries suddenly pull back from bold research in favor of safer bets? Research shows shareholder pressure plays a role. The tension between short-term financial pressure and long-term scientific progress is at the heart of many hedge-fund-led activist campaigns and may explain why companies retreat from basic research, with effects across the broader innovation ecosystem.

In this episode, Professor Elia Ferracuti, an accounting scholar at Duke University’s Fuqua School of Business, discusses new research—co-authored by Fuqua’s Rahul Vashishtha and Kevin Standbridge of the University of Utah—on how hedge fund activism affects corporate science.

Drawing on large-scale data linking activist investor campaigns to corporate research outputs, Ferracuti and his coauthors examine what happens inside firms after activists push for operational and governance changes. Their analysis spans multiple industries, with particularly rich evidence from pharmaceuticals, where innovation choices are easier to observe and compare.

The research found that after firms are targeted by activist hedge funds, they produce significantly less scientific research. Measured through publications in academic journals, corporate science declines overall—and drops most sharply in top-tier journals. In pharmaceuticals, targeted firms also shift away from novel drugs toward more incremental “me-too” compounds that closely resemble existing treatments. “Activism pushes corporations away from risky activities with long gestation periods and large spillovers,” Ferracuti said.

Why does this happen? Hedge fund activists typically acquire minority stakes but exert outsized influence, pressing managers to boost near-term returns. According to Ferracuti, this pressure changes internal priorities: “Foundational scientific research may be among the first activities to go.” Because basic research is uncertain, slow to pay off, and often benefits society more than any single firm, it becomes vulnerable when managers face intense scrutiny to deliver quick results.

The effects don’t stop with targeted firms. Rival companies in the same industry also scale back research, likely because they fear becoming the next activist target.

Shareholder activism can improve efficiency—but it also carries hidden costs for innovation, economic growth, and social welfare.

Ferracuti cautions against “fiddling” with the functioning of capital markets, instead pointing to the growing importance of sustaining and incentivizing fundamental research, especially at universities, at a time when public support for science is under pressure.

Duke Fuqua Insights features digestible conversations with our faculty about the most impactful research from their careers, including studies they teach in Fuqua classes. New episodes every other week in season.

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