Short-Termism, Investor Clientele, and Firm Risk

Francois Brochet, Maria Loumioti, George Serafeim
2012 Social Science Research Network  
Using conference call transcripts, we measure the time horizon that senior executives emphasize when they communicate with investors. We show that firms focusing more on the short-term have a more short-term oriented investor base. Moreover, we find that short-term oriented firms have higher stock price volatility, and that this effect is mitigated for firms with more long-term investors. We also find that short-term oriented firms have higher equity betas and as a result higher cost of
more » ... her cost of capital. However, this result is not mitigated by the presence of long-term investors, consistent with these investors requiring a risk premium for holding the stock of shortterm oriented firms. Overall, our evidence suggests that corporate short-termism is associated with greater risk and thus affects resource allocation.
doi:10.2139/ssrn.1999484 fatcat:mu7m4475vjfulhdaul6jgie3pi