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

39 Pages Posted: 23 Jan 2016 Last revised: 16 May 2019

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Ankur Pareek

Bucknell University, Freeman College of Management

Zacharias Sautner

University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Date Written: May 14, 2019

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-termism, managerial myopia, investment, misvaluation

JEL Classification: G31, G34, M12, M52

Suggested Citation

Cremers, K. J. Martijn and Pareek, Ankur and Sautner, Zacharias, Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions (May 14, 2019). Available at SSRN: https://ssrn.com/abstract=2720248 or http://dx.doi.org/10.2139/ssrn.2720248

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ankur Pareek

Bucknell University, Freeman College of Management ( email )

701 Moore Ave.
Lewisburg, PA 17837
United States

Zacharias Sautner (Contact Author)

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Swiss Finance Institute ( email )

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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