Seminar – The horizon of investors’ information and corporate investment.

We investigate whether the quality of investors’ information across horizons influ- ences corporate investment. In our theory, managers under-invest because their stock price imperfectly reflects the value created by their projects. This effect is stronger when there is a mismatch between the horizon of the projects’ cash flows and the horizon at which investors obtain information. Using a new hand-collected measure of projects’ horizon, we find that improvements in the quality of investors’ long-term (short-term) information induce firms with long-term (short-term) projects to invest more, particularly when managers prioritize current stock prices. Hence, the quality of investors’ information across horizons matters. Joint with Thierry Foucault and Laurent Fresard.

Tinbergen Institute Amsterdam, room 1.01 Amsterdam