Institutional investment horizons and firm valuation around the world
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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in: Journal of International Business Studies, Jahrgang 52, Nr. 2, 01.03.2021, S. 212-244.
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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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 -