The Horizon of Investors' Information and Corporate Investment
58 Pages Posted: 15 Nov 2022
Date Written: November 10, 2022
We study how the quality of investors' information across horizons influences investment. In our theory, managers care about how investment is impounded in current stock prices. Because prices imperfectly reflect investment’s value, they under-invest. However, they under-invest less when investors have better information about the horizon matching that of their projects. Using a measure of projects' horizon obtained from the text of regulatory filings, we find that improvements in investors' long-term (short-term) information induce firms with long-term (short-term) projects to invest more, especially when managers focus on current stock prices. Therefore, the quality of investors' information across horizons has real effects.
Keywords: Project Horizon, Short-termism, Information Quality, Forecasting horizon, Forecasts’ informativeness, Managerial Incentives
JEL Classification: D84, G14, G17, M41
Suggested Citation: Suggested Citation