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 :

May 14 2020
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Keywords

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

We show that following shocks that change an industry’s competitive environment, firms with more shortterm institutional investors experience smaller drops in sales and investment and have better long-term performance than similar firms affected by the shocks.

To do so, these firms introduce new products, file trademarks, intensify their innovation efforts, 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.
 

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Published in

Published in: 
Publication Title: 
Management Science, Forthcoming

Authors

Professor of Finance
Real name:
Xiaoyun Yu
Kelley School of Business, Indiana University, and a research member of the European Corporate Governance Institute