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

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  • Giannetti, Mariassunta
  • Yu, Xiaoyun

Abstract

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 their R&D and advertising expenses, differentiate their products from those of the competitors, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks, suggesting that they put stronger effort in adapting their business to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

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  • Giannetti, Mariassunta & Yu, Xiaoyun, 2017. "Adapting to Radical Change: The Benefits of Short-Horizon Investors," CEPR Discussion Papers 12021, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12021
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    More about this item

    Keywords

    Short-termism; Investor horizons; Restructuring; Tariff cuts; Deregulation;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F1 - International Economics - - Trade

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