Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions

Martijn Cremers (), Ankur Pareek and Zacharias Sautner ()
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Martijn Cremers: University of Notre Dame, Notre Dame, Indiana 46556;
Zacharias Sautner: Frankfurt School of Finance & Management, 60322 Frankfurt am Main, Germany

Management Science, 2020, vol. 66, issue 10, 4535-4551

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.

Keywords: short-term investors; long-term investments; Russell 2000 inclusions (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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