This paper investigates how hedge fund activism reshapes the corporate culture of targeted firms. By using culture measures based on the Q&A section of earnings conference calls, I find that target firms emphasize building organizational culture with better quality, more innovation, higher integrity, and growing respect. I also find that these positive effects of activism on corporate culture are mainly driven by CEO turnover, especially if incumbent CEOs are replaced by outsiders, not insiders. New outside CEOs are recruited from firms with better culture and higher asset sales. Activist-appointed directors also influence corporate culture by promoting outside CEO turnover. Target firms with positive cultural change improve their firm performance. Additionally, employees of target firms perceive their firms' culture as improved after activism. Overall, this study provides evidence of the importance of corporate culture as a source of gains from hedge fund activism.

Keywords: Hedge fund activism, corporate culture, CEO turnover, firm value.​