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Why Are Corporate Investment Horizons Shrinking? Uncovering the Spillover Effects of Shareholder Litigation

Author

Listed:
  • Mark R. DesJardine

    (Dartmouth College, Tuck School of Business, Hanover, New Hampshire 03755)

  • Wei Shi

    (University of Miami, Miami Herbert Business School, Coral Gables, Florida 33146)

  • Yin Cheng

    (Tsinghua University, Beijing 100190, China)

Abstract

Existing research shows that shareholder pressures can shorten firms’ investment horizons. Yet studies have so far been limited to the actions shareholders take directly toward a focal firm. Considering that shareholder pressures may spill over between organizations, we argue that firms shorten their investment horizons following shareholder-initiated lawsuits against their peers in an effort to boost their short-run performance and preempt being sued themselves. We further posit that the negative relationship between this form of litigation threat and a firm’s investment horizon is weakened among firms with more long-term shareholders or future-focused CEOs, both of which guard against managers becoming overly short-term oriented. An examination of 18 years of shareholder litigation data supports our theory. This study highlights shareholder litigation as a distinct form of shareholder voice and one that is sufficiently potent to create spillover effects between firms.

Suggested Citation

  • Mark R. DesJardine & Wei Shi & Yin Cheng, 2024. "Why Are Corporate Investment Horizons Shrinking? Uncovering the Spillover Effects of Shareholder Litigation," Strategy Science, INFORMS, vol. 9(3), pages 229-247, September.
    • Handle: RePEc:inm:orstsc:v:9:y:2024:i:3:p:229-247
    DOI: 10.1287/stsc.2022.0111
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