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Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions
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Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions
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Journal Article
Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions
2020
Overview
We document that an increase in short-horizon investors is associated with cuts to long-term investment and increased short-term earnings. This leads to temporary boosts in equity valuations that reverse over time. To estimate these effects, we use difference-in-differences regressions around firms’ additions to the Russell 2000, comparing firms with large and small increases in short-term ownership. We proxy for the presence of short-term investors using ownership by transient institutions. Our results suggest that short-term pressures by investors can lead to myopic firm behavior.
This paper was accepted by Shiva Rajgopal, accounting
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Publisher
INFORMS,Institute for Operations Research and the Management Sciences
Subject
