Investment Horizons and Information
Journal of Business Finance and Accounting, Forthcoming
53 Pages Posted: 30 Aug 2013 Last revised: 21 Apr 2016
Date Written: April 20, 2016
Abstract
We examine the relation between institutions' investment horizons on firms' financing and investment decisions. Firms with larger short-term institutional ownership use less debt financing and invest more in corporate liquidity. In contrast, firms with larger long-term institutional ownership use more internal funds, less external equity financing, and preserve investments in long-term assets. These results are primarily driven by the variation in informational preferences of different institutions. We argue that short-term (long-term) institutions collect and use value-neutral (value-enhancing) information.
Keywords: Institutions, investment horizons, corporate policies, information
JEL Classification: G32, G34
Suggested Citation: Suggested Citation