Real economy effects of short-term equity ownership\ud

Article English OPEN
Thanassoulis, John ; Somekhy, Babak (2015)

Investor time horizon varies by company, industry and economic system. In this paper we explore the importance of this variation by studying the impact of shareholder time horizon on the investment decisions of the rms they own, and externalities on the wider market. We demonstrate theoretically that short-term shareholders cause Boards to care about the path of the stock price, rationalising rms' pursuit of investments for signalling reasons at the expense of long-term value. We demonstrate that short-termism has spillover effects, leading to higher costs of equity capital; bubbles in the price of input assets; and predictable excess returns. We build testable cross-country hypotheses and evaluate these using existing evidence coupled with a new dataset on owner duration of U.S. and Germanic rms.\ud
  • References (32)
    32 references, page 1 of 4

    Albagli, E., Hellwig, C., and Tsyvinski, A. (2011). A theory of asset prices based on heterogeneous information. Working Paper: National Bureau of Economic Research.

    Allen, F. and Gale, D. (2000). Bubbles and crises. The Economic Journal, 110(460):236{ 255.

    Allen, F. and Gale, D. (2009). Understanding Financial Crises: Clarendon Lectures in Finance. Oxford University Press.

    Allen, F., Morris, S., and Postlewaite, A. (1993). Finite bubbles with short sale constraints and asymmetric information. Journal of Economic Theory, 61(2):206{229.

    Anderson, R. C., Duru, A., and Reeb, D. M. (2012). Investment policy in family controlled rms. Journal of Banking & Finance, 36(6):1744{1758.

    Anderson, R. C. and Reeb, D. M. (2003). Founding-family ownership and rm performance: Evidence from the S&P 500. Journal of Finance, 58(3):1301{1327.

    Andrade, G., Mitchell, M., and Sta ord, E. (2001). New evidence and perspectives on mergers. Journal of Eonomic Perspectives, 15(2):103{120.

    Antia, M., Pantzalis, C., and Park, J. C. (2010). CEO decision horizon and rm performance: An empirical investigation. Journal of Corporate Finance, 16(3):288{301.

    Black, A. and Fraser, P. (2002). Stock market short-termism - an international perspective. Journal of Multinational Financial Management, 12(2):135{158.

    Bolton, P., Scheinkman, J., and Xiong, W. (2006). Executive compensation and shorttermist behaviour in speculative markets. Review of Economic Studies, 73(3):577{610.

  • Metrics
    No metrics available
Share - Bookmark