81 Pages Posted: 5 Oct 2014 Last revised: 19 Jan 2017
Date Written: January 16, 2017
We study the effect of investor horizons on a comprehensive set of corporate decisions. We argue that monitoring by long-term investors generates decision making that maximizes shareholder value. We find that long-term investors strengthen governance and restrain managerial misbehaviors such as earnings management and financial fraud. They discourage a range of investment and financing activities but encourage payouts. Innovation increases, in quantity and quality. Shareholders benefit through higher profitability that the stock market does not fully anticipate, and lower risk.
Keywords: Agency problems; Monitoring; Managerial myopia; Investor horizons; Corporate governance; Managerial misbehavior; Investment; Innovation; Financing; Off balance sheet debt; Debt maturity; Payouts; Valuation; Profitability; Volatility; Credit events
JEL Classification: G23, G31, G32, G34, G35
Suggested Citation: Suggested Citation
Harford, Jarrad and Kecskes, Ambrus and Mansi, Sattar, Do Long-Term Investors Improve Corporate Decision Making? (January 16, 2017). Finance Down Under 2015 Building on the Best from the Cellars of Finance Paper; Asian Finance Association 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2505261 or http://dx.doi.org/10.2139/ssrn.2505261