This study examines the impact of activist board representation on the performance of target firms in Japan, the world's second-largest activist market. Activist board representation signals a long-term commitment to the firm, contrasting with the short-term focus typical of traditional hedge fund activism. This practice has become more prevalent in U.S. than in Japan. Hedge funds that secure board seats often hold shares for longer periods and participate actively in corporate strategies and operations.

Previous research on hedge fund activism in both the U.S. and Japan has yielded mixed results. Some studies report improvements in operating profit, while others find no significant enhancement in profitability. However, both types of studies commonly observe asset reductions and increased payouts and leverage, indicating significant asset selloffs associated with hedge fund activism.

Recent trends show hedge funds increasingly seeking board representation, signaling a shift towards long-term engagement with target firms. In Japan, this trend aligns with governance reforms under the Stewardship Code and the Corporate Governance Code since the mid-2010s, which emphasize institutional investors' responsibility to enhance corporate value and sustainable growth through active engagement. Consequently, the number of activist board members in Japan has increased.

This study addresses a gap in the literature by employing a difference-in-differences approach to compare performance changes between target and control firms in the same industry. This study finds that listed target firms experience improvements in return on equity/assets after activist board representation. However, this positive change is not observed in target firms delisted after the intervention.