Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions
Martijn Cremers, Ankur Pareek, Zacharias Sautner
Management Science · 2020 · Volume 66 · Issue 10
Abstract
We document that an increase in short-horizon investors is associated with cuts to long-term investment and increased short-term earnings. This leads to temporary boosts in equity valuations that reverse over time. To estimate these effects, we use difference-in-differences regressions around firms’ additions to the Russell 2000, comparing firms with large and small increases in short-term ownership. We proxy for the presence of short-term investors using ownership by transient institutions. Our results suggest that short-term pressures by investors can lead to myopic firm behavior. This paper was accepted by Shiva Rajgopal, accounting .
Keywords
short-term investors, long-term investments, Russell 2000 inclusions
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