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

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

Mariassunta Giannetti, Xiaoyun Yu

Series number :

Serial Number: 
467/2016

Date posted :

September 30 2017

Last revised :

April 23 2018
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Keywords

  • short-termism • 
  • investor horizons • 
  • restructuring • 
  • tariff cuts • 
  • deregulation

We show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks.

To do so, these firms increase advertising, differentiate their products from those of the competitors, 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.

Published in

Published in: 
Publication Title: 
28th Annual Conference on Financial Economics and Accounting

Authors

Real name: 
Xiaoyun Yu