The Horizon of Investors' Information and Corporate Investment

58 Pages Posted: 15 Nov 2022

See all articles by Olivier Dessaint

Olivier Dessaint

INSEAD

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Date Written: November 10, 2022

Abstract

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

Dessaint, Olivier and Foucault, Thierry and Frésard, Laurent, The Horizon of Investors' Information and Corporate Investment (November 10, 2022). HEC Paris Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4276832 or http://dx.doi.org/10.2139/ssrn.4276832

Olivier Dessaint (Contact Author)

INSEAD

Boulevard de Constance
77305 Fontainebleau Cedex
France

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Laurent Frésard

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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