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Investor Horizons and Corporate Policies

52 Pages Posted: 21 Oct 2009 Last revised: 9 Mar 2013

François Derrien

HEC Paris - Finance Department

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Ambrus Kecskes

York University - Schulich School of Business

Date Written: June 27, 2012

Abstract

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

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

François Derrien

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

David Thesmar (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

Ambrus Kecskes

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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