Investor Horizons and Corporate Policies
HEC Paris - Finance Department
York University - Schulich School of Business
June 27, 2012
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
We study the effect of investor horizons on corporate behavior. We argue that longer investor horizons attenuate the effect of stock mispricing on corporate policies. Consistent with our argument, we find that when a firm is undervalued, greater long-term investor ownership is associated with more investment, more equity financing, and less payouts to shareholders. Our results do not appear to be explained by long-term investor self-selection, monitoring (corporate governance), or concentration (blockholdings). Our results are consistent with a version of market timing in which mispriced firms cater to the tastes of their short-term investors rather than their long-term investors.
Number of Pages in PDF File: 52
Keywords: Investor horizons, Institutional investors, Investment, Financing, Payouts, Mispricing, Market timing
JEL Classification: G23, G31, G32, G35
Date posted: October 21, 2009 ; Last revised: March 9, 2013
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