Why Are Corporate Investment Horizons Shrinking? Uncovering the Spillover Effects of Shareholder Litigation

Mark R. DesJardine (), Wei Shi () and Yin Cheng ()
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Mark R. DesJardine: Dartmouth College, Tuck School of Business, Hanover, New Hampshire 03755
Wei Shi: University of Miami, Miami Herbert Business School, Coral Gables, Florida 33146
Yin Cheng: Tsinghua University, Beijing 100190, China

Strategy Science, 2024, vol. 9, issue 3, 229-247

Abstract: Existing research shows that shareholder pressures can shorten firms’ investment horizons. Yet studies have so far been limited to the actions shareholders take directly toward a focal firm. Considering that shareholder pressures may spill over between organizations, we argue that firms shorten their investment horizons following shareholder-initiated lawsuits against their peers in an effort to boost their short-run performance and preempt being sued themselves. We further posit that the negative relationship between this form of litigation threat and a firm’s investment horizon is weakened among firms with more long-term shareholders or future-focused CEOs, both of which guard against managers becoming overly short-term oriented. An examination of 18 years of shareholder litigation data supports our theory. This study highlights shareholder litigation as a distinct form of shareholder voice and one that is sufficiently potent to create spillover effects between firms.

Keywords: investment horizon; corporate short-termism; shareholder litigation; corporate governance; temporal focus (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:9:y:2024:i:3:p:229-247

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