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

Authors

Martijn Cremers, University of Notre Dame
Ankur Pareek, University of Nevada, Las VegasFollow
Zacharias Sautner, Frankfurt School of Finance and Management

Document Type

Article

Publication Date

1-31-2020

Publication Title

Management Science

Volume

66

Issue

10

First page number:

4535

Last page number:

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

Disciplines

Finance and Financial Management

Language

English

Repository Citation

Cremers, M., Pareek, A., Sautner, Z. (2020). Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions. Management Science, 66(10), 4535-4551.
http://dx.doi.org/10.1287/mnsc.2019.3361