← Search

Journal of Financial Markets Vol. 59 2022

Investor short-termism and real investment

Dominik M. Rösch1; Avanidhar Subrahmanyam2; Mathijs A. van Dijk

1 University at Buffalo, State University of New York · 2 University of California, Los Angeles

open access

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.

DOI
10.1016/j.finmar.2021.100645
Volume
59
Pages
100645
Language
en
Sources
crossref openalex

Cite