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Investor Horizons and Corporate Policies

Published online by Cambridge University Press:  02 January 2014

François Derrien ,
Ambrus Kecskés  and
David Thesmar
François Derrien
Affiliation:
derrien@hec.fr,
Ambrus Kecskés
Affiliation:
akecskes@schulich.yorku.ca, Schulich School of Business, York University, 4700 Keele St, North York, ON M3J 1P3, Canada.
David Thesmar
Affiliation:
thesmar@hec.fr, Finance Department, HEC Paris, 1 rue de la Libération, Jouy en Josas 78351, France;
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Abstract

We study the effect of investor horizons on corporate behavior. We argue that longer investor horizons attenuate the effect of stock mispricing on corporate policies. Consistent with our argument, we find that when a firm is undervalued, greater long-term investor ownership is associated with more investment, more equity financing, and less payouts to shareholders. Our results do not appear to be explained by long-term investor self-selection, monitoring (corporate governance), or concentration (blockholdings). Our results are consistent with a version of market timing in which mispriced firms cater to the tastes of their short-term investors rather than their long-term investors.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 6 , December 2013 , pp. 1755 - 1780
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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