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Investor Horizons and Corporate Policies

Francois Derrien
HEC Paris

Ambrus Kecskes
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

David Thesmar
HEC Paris (Groupe HEC)


October 20, 2009


Abstract:     
This paper looks at the effect of shareholder horizon on corporate behavior. In perfect capital markets, corporate behavior should be insensitive to shareholder horizon, but when investment opportunities are not well valued by the market, shareholder horizon matters. We first present a simple framework to show that shareholder horizon should be looked at in conjunction with stock misvaluation. We build on this insight to design a novel empirical strategy to assess the impact of investor short-termism. Consistent with our simple framework, we find that, when a firm is undervalued, the presence of more short-term investors is associated with bigger shareholder payout, less equity issue, less external financing, and as a result, less investment and less R&D spending. Under our interpretation, long-term investors are not more involved in corporate governance, yet, they affect corporate policy.

Keywords: Investor Horizon, Payouts, Financing, Investment

JEL Classifications: G31, G32, G35

Working Paper Series

Date posted: October 21, 2009 ; Last revised: October 21, 2009

Suggested Citation

Derrien, Francois, Thesmar, David and Kecskes, Ambrus, Investor Horizons and Corporate Policies (October 20, 2009). Available at SSRN: http://ssrn.com/abstract=1491638


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Contact Information

David Thesmar (Contact Author)
HEC Paris (Groupe HEC) ( email )
1 rue de la Liberation
78351 Jouy en Josas Cedex France
+33 1 39 67 94 12 (Phone)
HOME PAGE: http://www.hec.fr/hec/eng/professeurs_recherche/p_liste/p_fiche.php?num=135
Francois Derrien
HEC Paris ( email )
1 rue de la Liberation
78351 Jouy-en-Josas Cedex France
33 1 39 67 72 98 (Phone)
HOME PAGE: http://www.hec.fr/derrien
Ambrus Kecskes
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )
1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States
Feedback to SSRN (Beta)


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