Do long-term investors improve corporate decision making?

We study the effect of investor horizons on a comprehensive set of corporate decisions. We argue that monitoring by long-term investors generates decision making that maximizes shareholder value. We find that long-term investors strengthen governance and restrain managerial misbehaviors such as earn...

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Bibliographic Details
Published inJournal of corporate finance (Amsterdam, Netherlands) Vol. 50; pp. 424 - 452
Main Authors Harford, Jarrad, Kecskés, Ambrus, Mansi, Sattar
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.06.2018
Subjects
Agency problems
Corporate governance
Credit events
Debt maturity
Financing
Innovation
Investment
Investor horizons
Managerial misbehavior
Managerial myopia
Monitoring
Off balance sheet debt
Payouts
Profitability
Valuation
Volatility
Profitability
G31
Debt maturity
Valuation
Volatility
G32
G35
G23
G34
Off balance sheet debt
Managerial misbehavior
Innovation
Corporate governance
Agency problems
Financing
Payouts
Managerial myopia
Credit events
Monitoring
Investor horizons
Investment
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Summary:We study the effect of investor horizons on a comprehensive set of corporate decisions. We argue that monitoring by long-term investors generates decision making that maximizes shareholder value. We find that long-term investors strengthen governance and restrain managerial misbehaviors such as earnings management and financial fraud. They discourage a range of investment and financing activities but encourage payouts. Innovation increases, in quantity and quality. Shareholders benefit through higher profitability that the stock market does not fully anticipate, and lower risk.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2017.09.022