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)

No 1462, HEC Research Papers Series from HEC Paris

Abstract: We show that the quality of investors’ information across horizons has real effects. When managers focus on current stock prices, they under-invest if their price imperfectly reflects the value of their projects. We posit that this under-investment is larger when the horizon at which investors obtain information does not match the horizon of firms’ investment projects. Using a new hand-collected measure of projects' horizon, we test and confirm this hypothesis: Empirically, improvements in the quality of investors' information about long-term (short-term) cash flows induce firms with long-term (short-term) projects to invest more, particularly when managers prioritize current stock prices.

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: 55 pages
Date: 2022-11-15
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 Full text (text/html)

Related works:
Working Paper: The Horizon of Investors' Information and Corporate Investment (2023)
Working Paper: The Horizon of Investors' Information and Corporate Investment (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1462

DOI: 10.2139/ssrn.4276832

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