The Horizon of Investors' Information and Corporate Investment

Olivier Dessaint, Thierry Foucault and Laurent Frésard
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Olivier Dessaint: INSEAD
Laurent Frésard: Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

No 23-03, Swiss Finance Institute Research Paper Series from 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.

Keywords: Project Horizon; Short-termism; Information Quality; Forecasting horizon; Forecasts’ informativeness; Managerial Incentives (search for similar items in EconPapers)
JEL-codes: D84 G14 G17 M41 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2023-01
New Economics Papers: this item is included in nep-cfn and nep-ppm
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4276832 (application/pdf)

Related works:
Working Paper: The Horizon of Investors' Information and Corporate Investment (2022)
Working Paper: The Horizon of Investors' Information and Corporate Investment (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2303

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