Shareholder Investment Horizons and the Market for Corporate Control

33 Pages Posted: 27 Aug 2004

See all articles by Jose-Miguel Gaspar

Jose-Miguel Gaspar

ESSEC Business School

Massimo Massa

INSEAD - Finance

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)


This paper investigates how the investment horizon of a firm's institutional shareholders impacts the market for corporate control. We find that target firms with short-term shareholders are more likely to receive an acquisition bid but get lower premiums. This effect is robust and economically significant: Targets whose shareholders hold their stocks for less four months, one standard deviation away from the average holding period of 15 months, exhibit a lower premium by 3%. In addition, we find that bidder firms with short-term shareholders experience significantly worse abnormal returns around the merger announcement, as well as higher long-run underperformance. These findings suggest that firms held by short-term investors have a weaker bargaining position in acquisitions. Weaker monitoring from short-term shareholders could allow managers to proceed with value-reducing acquisitions or to bargain for personal benefits (e.g., job security, empire building) at the expense of shareholder returns.

Keywords: Investment horizon, mergers and acquisitions, shareholder heterogeneity, institutional investors, short termism

JEL Classification: G34, G23, G32

Suggested Citation

Gaspar, Jose-Miguel and Massa, Massimo and Matos, Pedro, Shareholder Investment Horizons and the Market for Corporate Control. Available at SSRN:

Jose-Miguel Gaspar (Contact Author)

ESSEC Business School ( email )

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Massimo Massa

INSEAD - Finance ( email )

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+33 1 6072 4045 (Fax)

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
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Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels

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