52 Pages Posted: 21 Oct 2009 Last revised: 9 Mar 2013
Date Written: June 27, 2012
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.
Keywords: Investor horizons, Institutional investors, Investment, Financing, Payouts, Mispricing, Market timing
JEL Classification: G23, G31, G32, G35
Suggested Citation: Suggested Citation
Derrien, François and Thesmar, David and Kecskes, Ambrus, Investor Horizons and Corporate Policies (June 27, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1491638 or http://dx.doi.org/10.2139/ssrn.1491638
By Alex Edmans