Adapting to Radical Change: The Benefits of Short-Horizon Investors

53 Pages Posted: 7 Sep 2017 Last revised: 10 Jul 2020

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2019

Abstract

We show that following shocks that change an industry’s competitive environment, firms with more short-term institutional investors experience smaller drops in sales and investment and have better long-term performance than similar firms affected by the shocks. To do so, these firms introduce new products, file more trademarks, intensify their innovation efforts, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term investors adapt better to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

Keywords: Short-termism, investor horizons, restructuring, tariff cuts

JEL Classification: G3, G23, F1

Suggested Citation

Giannetti, Mariassunta and Yu, Xiaoyun, Adapting to Radical Change: The Benefits of Short-Horizon Investors (December 13, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 467/2016, Management Science, forthcoming, 28th Annual Conference on Financial Economics and Accounting, Available at SSRN: https://ssrn.com/abstract=2723357 or http://dx.doi.org/10.2139/ssrn.2723357

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance ( email )

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