Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions

39 Pages Posted: 23 Jan 2016 Last revised: 16 May 2019

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Ankur Pareek

University of Nevada, Las Vegas - Lee Business School, University of Nevada - Las Vegas

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH; European Corporate Governance Institute (ECGI)

Date Written: May 14, 2019

Abstract

We document that an increase in short-horizon investors is associated with cuts to long-term investment and increased short-term earnings. This leads to temporary boosts in equity valuations that reverse over time. To estimate these effects, we use difference-in-differences regressions around firms’ additions to the Russell 2000, comparing firms with large and small increases in short-term ownership. We proxy for the presence of short-term investors using ownership by transient institutions. Our results suggest that short-term pressures by investors can lead to myopic firm behavior.

Keywords: short-termism, managerial myopia, investment, misvaluation

JEL Classification: G31, G34, M12, M52

Suggested Citation

Cremers, K. J. Martijn and Pareek, Ankur and Sautner, Zacharias, Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions (May 14, 2019). Available at SSRN: https://ssrn.com/abstract=2720248 or http://dx.doi.org/10.2139/ssrn.2720248

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Ankur Pareek

University of Nevada, Las Vegas - Lee Business School, University of Nevada - Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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