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

Management Science, Forthcoming

Swedish House of Finance Research Paper No. 20-23

53 Pages Posted: 24 Sep 2020 Last revised: 29 Sep 2020

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 3 versions of this paper

Date Written: April 9, 2020

Abstract

We show that following shocks that change an industry’s competitive environment, firms with more short-term institutional investors experience smaller drops in sales and investment and have better long-term performance than similar firms affected by the shocks. To do so, these firms introduce new products, file more trademarks, intensify their innovation efforts, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term investors adapt better to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

Keywords: Short-termism, investor horizons, tariff cuts

JEL Classification: G3, G23, F1

Suggested Citation

Giannetti, Mariassunta and Yu, Xiaoyun, Adapting to Radical Change: The Benefits of Short-Horizon Investors (April 9, 2020). Management Science, Forthcoming , Swedish House of Finance Research Paper No. 20-23, Available at SSRN: https://ssrn.com/abstract=3651146 or http://dx.doi.org/10.2139/ssrn.3651146

Mariassunta Giannetti

Stockholm School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Swedish House of Finance ( email )

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Xiaoyun Yu (Contact Author)

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

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United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

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China

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