Can Firms Do Well for Shareholders by Doing Good for Stakeholders? The Importance of Long-Term Investors

63 Pages Posted: 4 Jan 2013 Last revised: 10 Jun 2013

See all articles by Ambrus Kecskes

Ambrus Kecskes

York University - Schulich School of Business

Sattar Mansi

Virginia Polytechnic Institute & State University

Phuong-Anh Nguyen

York University - Schulich School of Business

Date Written: December 9, 2012

Abstract

The effect of corporate investment in stakeholder capital on shareholder value is a matter of great debate. We argue that long-term investors are natural monitors that can ensure that managers choose stakeholder capital investment to maximize shareholder value. We find that firms with longer investor horizons invest more in stakeholder capital, and such firms have higher stock valuations, which are not a result of higher cash flow but rather of lower cash flow risk. To establish causality, we use long-term investor that are indexers and long-term investors in index firms. Our results suggest that firms can do well for shareholders by doing good for other stakeholders as long as they are properly monitored by long-term investors.

Keywords: Agency problems, Corporate governance, Monitoring, Managerial myopia, Institutional investors, Investor horizons, Investment, Corporate social responsibility, Intangibles, Shareholders, Stakeholders

JEL Classification: G12, G23, G31, G32, G34, L21, M14

Suggested Citation

Kecskes, Ambrus and Mansi, Sattar and Nguyen, Phuong-Anh, Can Firms Do Well for Shareholders by Doing Good for Stakeholders? The Importance of Long-Term Investors (December 9, 2012). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2196471 or http://dx.doi.org/10.2139/ssrn.2196471

Ambrus Kecskes (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Sattar Mansi

Virginia Polytechnic Institute & State University ( email )

Phuong-Anh Nguyen

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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