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The Horizon of Investors' Information and Corporate Investment

Author

Listed:
  • Dessaint, Olivier

    (INSEAD)

  • Foucault, Thierry

    (HEC Paris)

  • Frésard, Laurent

    (Universita della Svizzera italiana (USI Lugano))

Abstract

We show that the quality of investors’ information across horizons has real effects. When managers focus on current stock prices, they under-invest if their price imperfectly reflects the value of their projects. We posit that this under-investment is larger when the horizon at which investors obtain information does not match the horizon of firms’ investment projects. Using a new hand-collected measure of projects' horizon, we test and confirm this hypothesis: Empirically, improvements in the quality of investors' information about long-term (short-term) cash flows induce firms with long-term (short-term) projects to invest more, particularly when managers prioritize current stock prices.

Suggested Citation

  • Dessaint, Olivier & Foucault, Thierry & Frésard, Laurent, 2022. "The Horizon of Investors' Information and Corporate Investment," HEC Research Papers Series 1462, HEC Paris.
    • Handle: RePEc:ebg:heccah:1462
    DOI: 10.2139/ssrn.4276832
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    Keywords

    Project Horizon; Short-termism; Information Quality; Forecasting horizon; Forecasts’ informativeness; Managerial Incentives;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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