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

59 Pages Posted: 7 Sep 2017 Last revised: 1 Oct 2017

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)

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Date Written: September 13, 2017

Abstract

We show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks. To do so, these firms increase advertising, differentiate their products from those of the competitors, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term institutional investors put stronger effort in adapting their business 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, deregulation

JEL Classification: G3, G23, F1

Suggested Citation

Giannetti, Mariassunta and Yu, Xiaoyun, Adapting to Radical Change: The Benefits of Short-Horizon Investors (September 13, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 467/2016. Available at SSRN: https://ssrn.com/abstract=2723357

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

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B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Xiaoyun Yu

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

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

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Shanghai P.R.China, 200030
China

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