Using investors’ trading horizons to capture their incentives to collect information and monitor management’s decisions, this paper shows that an increase in the ownership stake held by long-term institutional investors is associated with a subsequent decrease in real investment precisely in firms that invest too much. In support of the monitoring hypothesis, we show that results are driven by the purchases of long-term investors, while quasi-indexers and transient investors have no influence on investment. We address the problem of endogeneity using the inclusion of a firm to the S&P 500 Index as an exogenous shock to institutional holdings. Overall, the evidence indicates that long-term institutional investors influence managers’ decisions and are associated with lower agency conflicts in investment choices.