Since well before the days of Gordon Gekko, regulators and policymakers have pondered whether vulture capitalists add value or simply destroy what little hope is left for ailing companies.

In general, research seems to suggest that private equity firms (of both the vulture and non-vulture persuasion) add significant social value (see AllAboutAlpha.com coverage) by reducing, not increasing the rate of bankruptcy of target companies.  Other studies have found that activist hedge funds are also associated with more successful outcomes – but mainly because they know how to pick the winning situations before diving in (see AllAboutAlpha.com coverage).  And further research suggests that activist hedge funds serve an important role in keeping management honest – a role some say should be played more aggressively by institutional investors (see AllAboutAlpha.com coverage).

A study released last month adds to the evidence that activist hedge funds add long-term value.  In an unfortunately titled paper (given recent blow-ups) called “Hedge Funds in Chapter 11″, Wei Jiang of Columbia, Kai Li of the University of British Columbia and Wei Wang of Canada’s prestigious Queen’s University (disclosure: am an alumnus) argue that the involvement of activist hedge funds in distressed situations is a predictor of better outcomes.

How much better?  When the trio compared the returns of Chapter 11 cases where hedge funds as major creditors with returns from Chapter 11 cases where hedge funds were absent, they found that hedge fund involvement was good news… More…