Friday seminar - "The Horizon of Investors’ Information and Corporate Investment" - Thierry Foucault (HEC Paris)
The Horizon of Investors’ Information and Corporate Investment
Abstract: We study how the quality of investors’ information across horizons influences investment. In our theory, firms’ managers underinvest because stock prices imperfectly reflect the value created by their investment projects. This effect is stronger when there is a mismatch between the horizon at which investors obtain information and the horizon of firms’ investment projects. As predicted, using a measure of projects’ horizon obtained from the text of regulatory filings, we find that improvements in investors’ long-term (short-term) information induce firms with long-term (short-term) projects to invest more, especially when managers focus on current stock prices. Therefore, the quality of investors’ information across horizons has real effects.