Adapting to Radical Change: The Benefits of Short-Horizon Investors
59 Pages Posted: 7 Sep 2017 Last revised: 17 Apr 2018
Date Written: April 2018
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 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, deregulation
JEL Classification: G3, G23, F1
Suggested Citation: Suggested Citation