Adapting to Radical Change: The Benefits of Short-Horizon Investors

63 Pages Posted: 8 May 2017

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017

Abstract

We show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks. To do so, these firms increase their R&D and advertising expenses, differentiate their products from those of the competitors, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks, suggesting that they put stronger effort in adapting their business to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

Keywords: deregulation, investor horizons, Restructuring, Short-termism, tariff cuts

JEL Classification: F1, G23, G3

Suggested Citation

Giannetti, Mariassunta and Yu, Xiaoyun, Adapting to Radical Change: The Benefits of Short-Horizon Investors (May 2017). CEPR Discussion Paper No. DP12021. Available at SSRN: https://ssrn.com/abstract=2964844

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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111 60 Stockholm
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Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

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Shanghai P.R.China, 200030
China

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