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Adapting to Radical Change: The Benefits of Short-Horizon Investors

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  • Mariassunta Giannetti

    (Stockholm School of Economics, S-11383 Stockholm, Sweden; ; Center for Economic and Policy Research, London EC1V 0DX, United Kingdom; European Corporate Governance Institute, 1000 Brussels, Belgium)

  • Xiaoyun Yu

    (Department of Finance, Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

Abstract

We show that, following shocks that change an industry’s competitive environment, firms with more short-term institutional investors experience smaller drops in sales and investment and have better long-term performance than similar firms affected by the shocks. To do so, these firms introduce new products, file more trademarks, intensify their innovation efforts, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term investors adapt better to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

Suggested Citation

  • Mariassunta Giannetti & Xiaoyun Yu, 2021. "Adapting to Radical Change: The Benefits of Short-Horizon Investors," Management Science, INFORMS, vol. 67(7), pages 4032-4055, July.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:7:p:4032-4055
    DOI: 10.1287/mnsc.2020.3702
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    4. Mengqin Zhang & Yi He & Surui Zhang & Xiang Zhang & Stavros Sindakis & Saloome Showkat, 2024. "Stock Liquidity and Investment Efficiency: Evidence from the New Regulation of Insider Selling in China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8563-8587, June.
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    6. Boubaker, Sabri & Saffar, Walid & Sassi, Syrine, 2018. "Product market competition and debt choice," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 204-224.
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    8. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2021. "Institutional investment horizons and firm valuation around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 212-244, March.
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    10. Zhihao Wang & Kezhi Liao & Sisi Wang, 2024. "Institutional investor horizons, ownership structure and investment efficiency in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 739-782, March.
    11. Driss, Hamdi & Drobetz, Wolfgang & El Ghoul, Sadok & Guedhami, Omrane, 2021. "Institutional investment horizons, corporate governance, and credit ratings: International evidence," Journal of Corporate Finance, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    short-termism; investor horizons; tariff cuts;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F1 - International Economics - - Trade

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