Do Long-Term Investors Improve Corporate Decision Making?
81 Pages Posted: 5 Oct 2014 Last revised: 27 Nov 2017
Date Written: November 25, 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