Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions
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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.
Short-term investors; Long-term investments; Russell 2000 inclusions
Finance and Financial Management
Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions.
Management Science, 66(10),