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The Horizon of Investors' Information and Corporate Investment

Author

Listed:
  • Olivier Dessaint

    (INSEAD)

  • Thierry Foucault

    (HEC Paris - Finance Department)

  • Laurent Frésard

    (Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute)

Abstract

We study how the quality of investors' information across horizons influences investment. In our theory, managers care about how investment is impounded in current stock prices. Because prices imperfectly reflect investment’s value, they under-invest. However, they under-invest less when investors have better information about the horizon matching that of their projects. Using a measure of projects' horizon obtained from the text of regulatory filings, we find that improvements in investors' long-term (short-term) information induce firms with long-term (short-term) projects to invest more, especially when managers focus on current stock prices. Therefore, the quality of investors' information across horizons has real effects.

Suggested Citation

  • Olivier Dessaint & Thierry Foucault & Laurent Frésard, 2023. "The Horizon of Investors' Information and Corporate Investment," Swiss Finance Institute Research Paper Series 23-03, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2303
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    Keywords

    Project Horizon; Short-termism; Information Quality; Forecasting horizon; Forecasts’ informativeness; Managerial Incentives;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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