Investor short-termism and real investment

Dominik M. Rösch, Avanidhar Subrahmanyam, Mathijs A. van Dijk*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

1 Citation (Scopus)

Abstract

Short-term traders could affect the informativeness of stock prices about long-run fundamentals. Less (more) short-termism may thus induce managers to rely more (less) on stock prices in real investment decisions. Supporting this notion, we show that the investment-to-price sensitivity is inversely related to two short-termism proxies (controlling for firm size): institutional churn and liquidity. We confirm this finding using decimalization and an increase in mutual fund disclosure frequency as exogenous shocks to short-termism. Furthermore, short-termism is associated with an increased likelihood of voluntary capital expenditure forecasts by managers, suggesting a greater tendency to solicit market feedback when short-termism is high.

Original languageEnglish
Article number100645
JournalJournal of Financial Markets
Volume59
DOIs
Publication statusAccepted/In press - 29 Apr 2021

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