Institutional investment horizons and firm valuation around the world

Publikation: Beiträge in ZeitschriftenZeitschriftenaufsätzeForschungbegutachtet

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Institutional investment horizons and firm valuation around the world. / Döring, Simon; Drobetz, Wolfgang; El Ghoul, Sadok et al.
in: Journal of International Business Studies, Jahrgang 52, Nr. 2, 01.03.2021, S. 212-244.

Publikation: Beiträge in ZeitschriftenZeitschriftenaufsätzeForschungbegutachtet

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Döring S, Drobetz W, El Ghoul S, Guedhami O, Schröder H. Institutional investment horizons and firm valuation around the world. Journal of International Business Studies. 2021 Mär 1;52(2):212-244. doi: 10.1057/s41267-020-00351-9

Bibtex

@article{80c99ffc32d94a23b71b16d886c98a8e,
title = "Institutional investment horizons and firm valuation around the world",
abstract = "Using a comprehensive dataset of firms from 34 countries, we study the effect of institutional investors{\textquoteright} investment horizons on firm valuation around the world. We find a positive relation between institutional ownership and firm value that is driven by short-horizon institutional investors. Accounting for the interaction between investors{\textquoteright} investment horizon and nationality, we show that foreign short-horizon institutions, which are more likely to discipline managers through the threat of exit rather than engaging in monitoring made costly by the liability of foreignness, are the investor group with the strongest effect on firm value. Reinforcing the threat of exit channel, we find that the value-enhancing effect of short-horizon investors is stronger in the presence of multiple short-horizon investors, who are more likely to engage in competitive trading. The positive valuation effect of short-horizon investors is stronger when stock liquidity is high, which makes the exit threat more credible, and in firms prone to free cash flow agency problems. Overall, our results are consistent with short-horizon institutional investors, especially foreign institutional owners, affecting firm value by disciplining managers through a credible threat of exit.",
keywords = "firm value, foreign investors, institutional investors, international corporate governance, investment horizon, Management studies",
author = "Simon D{\"o}ring and Wolfgang Drobetz and {El Ghoul}, Sadok and Omrane Guedhami and Henning Schr{\"o}der",
note = "Publisher Copyright: {\textcopyright} 2020, Academy of International Business.",
year = "2021",
month = mar,
day = "1",
doi = "10.1057/s41267-020-00351-9",
language = "English",
volume = "52",
pages = "212--244",
journal = "Journal of International Business Studies",
issn = "0047-2506",
publisher = "Palgrave Macmillan",
number = "2",

}

RIS

TY - JOUR

T1 - Institutional investment horizons and firm valuation around the world

AU - Döring, Simon

AU - Drobetz, Wolfgang

AU - El Ghoul, Sadok

AU - Guedhami, Omrane

AU - Schröder, Henning

N1 - Publisher Copyright: © 2020, Academy of International Business.

PY - 2021/3/1

Y1 - 2021/3/1

N2 - Using a comprehensive dataset of firms from 34 countries, we study the effect of institutional investors’ investment horizons on firm valuation around the world. We find a positive relation between institutional ownership and firm value that is driven by short-horizon institutional investors. Accounting for the interaction between investors’ investment horizon and nationality, we show that foreign short-horizon institutions, which are more likely to discipline managers through the threat of exit rather than engaging in monitoring made costly by the liability of foreignness, are the investor group with the strongest effect on firm value. Reinforcing the threat of exit channel, we find that the value-enhancing effect of short-horizon investors is stronger in the presence of multiple short-horizon investors, who are more likely to engage in competitive trading. The positive valuation effect of short-horizon investors is stronger when stock liquidity is high, which makes the exit threat more credible, and in firms prone to free cash flow agency problems. Overall, our results are consistent with short-horizon institutional investors, especially foreign institutional owners, affecting firm value by disciplining managers through a credible threat of exit.

AB - Using a comprehensive dataset of firms from 34 countries, we study the effect of institutional investors’ investment horizons on firm valuation around the world. We find a positive relation between institutional ownership and firm value that is driven by short-horizon institutional investors. Accounting for the interaction between investors’ investment horizon and nationality, we show that foreign short-horizon institutions, which are more likely to discipline managers through the threat of exit rather than engaging in monitoring made costly by the liability of foreignness, are the investor group with the strongest effect on firm value. Reinforcing the threat of exit channel, we find that the value-enhancing effect of short-horizon investors is stronger in the presence of multiple short-horizon investors, who are more likely to engage in competitive trading. The positive valuation effect of short-horizon investors is stronger when stock liquidity is high, which makes the exit threat more credible, and in firms prone to free cash flow agency problems. Overall, our results are consistent with short-horizon institutional investors, especially foreign institutional owners, affecting firm value by disciplining managers through a credible threat of exit.

KW - firm value

KW - foreign investors

KW - institutional investors

KW - international corporate governance

KW - investment horizon

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=85086584119&partnerID=8YFLogxK

U2 - 10.1057/s41267-020-00351-9

DO - 10.1057/s41267-020-00351-9

M3 - Journal articles

AN - SCOPUS:85086584119

VL - 52

SP - 212

EP - 244

JO - Journal of International Business Studies

JF - Journal of International Business Studies

SN - 0047-2506

IS - 2

ER -

DOI