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
Date Written: May 14, 2019
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: Suggested Citation