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

Author

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  • Martijn Cremers

    (University of Notre Dame, Notre Dame, Indiana 46556;)

  • Ankur Pareek

    (University of Nevada, Las Vegas, Las Vegas, Nevada 89154;)

  • Zacharias Sautner

    (Frankfurt School of Finance & Management, 60322 Frankfurt am Main, Germany)

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.

Suggested Citation

  • Martijn Cremers & Ankur Pareek & Zacharias Sautner, 2020. "Short-Term Investors, Long-Term Investments, and Firm Value: Evidence from Russell 2000 Index Inclusions," Management Science, INFORMS, vol. 66(10), pages 4535-4551, October.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:10:p:4535-4551
    DOI: 10.1287/mnsc.2019.3361
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