The Horizon of Investors’ Information and Corporate Investment
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Series
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Speaker(s)Olivier Dessaint (INSEAD, France)
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FieldFinance, Accounting and Finance
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LocationErasmus University Rotterdam, Sanders 0-12
Rotterdam -
Date and time
September 17, 2024
11:45 - 13:00
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.