Institutional Investor Horizon and Firm Valuation Around the World

57 Pages Posted: 28 May 2019 Last revised: 29 Nov 2019

See all articles by Simon Döring

Simon Döring

University of Hamburg

Wolfgang Drobetz

University of Hamburg

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Henning Schröder

University of Hamburg - Hamburg Business School; Hamburg Financial Research Center

Date Written: April 30, 2019

Abstract

We study the effect of institutional investors’ investment horizon on firm valuation around the world. Using a comprehensive data set of firms from 34 countries, we find that the positive relation between institutional ownership and firm value is driven by short-horizon institutions. This valuation effect of short-horizon institutions is stronger in firms with a low concentration of short-term institutional investors, in countries with high market liquidity, in firms with high stock liquidity, and in cash-rich firms prone to free cash flow agency problems. Moreover, we find that foreign short-term institu-tions, which are more likely to discipline managers through the threat of exit rather than engaging in monitoring made costly by the liability of foreignness, have a stronger effect on firm value than domestic short-term institutions. Collectively, our results are consistent with short-term institutional investors affecting firm value by disciplining managers through a credible threat of exit.

Keywords: Institutional investors, investment horizon, foreign investors, international corporate governance, firm value

Suggested Citation

Döring, Simon and Drobetz, Wolfgang and El Ghoul, Sadok and Guedhami, Omrane and Schröder, Henning, Institutional Investor Horizon and Firm Valuation Around the World (April 30, 2019). Available at SSRN: https://ssrn.com/abstract=3380715 or http://dx.doi.org/10.2139/ssrn.3380715

Simon Döring

University of Hamburg ( email )

Moorweidenstraße 18
Hamburg, 20148
Germany

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Henning Schröder

University of Hamburg - Hamburg Business School ( email )

Moorweidenstr. 18
Hamburg, 20148
Germany

Hamburg Financial Research Center ( email )

c/o University of Hamburg
Moorweidenstr. 18
Hamburg, 20148
Germany

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