Institutional Investor Horizon and Firm Valuation Around the World

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See all articles by Simon Döring

Simon Döring

University of Hamburg

Wolfgang Drobetz

Hamburg University

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Henning Schröder

University of Hamburg

Date Written: April 30, 2019

Abstract

Using a comprehensive dataset of firms from 34 countries, we study the effect of institutional investors’ investment horizons on firm valuation around the world. Long-term investors invest in firms domiciled in countries with a more investor-friendly institutional environment, while short-term investors tend to be less concerned about the quality of the financial and legal environment. 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 countries with high market liquidity, in firms with high stock liquidity, and in cash-rich firms that are prone to free cash flow agency problems. Our results are consistent with short-term investors affecting firm value by disciplining managers through a credible threat of exit. Finally, foreign short-term institutions have a stronger effect on firm value, suggesting that they are more independent and are associated with a more credible threat of exit.

Keywords: Institutional investors, investment horizon, institutional environments, corporate governance, foreign investors, 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=

Simon Döring

University of Hamburg ( email )

Moorweidenstraße 18
Hamburg, 20148
Germany

Wolfgang Drobetz

Hamburg University ( 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 ( email )

Moorweidenstraße 18
Hamburg, 20148
Germany
+49 (0)40 42838 6537 (Phone)

HOME PAGE: http://www.bwl.uni-hamburg.de/finance

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