July 12, 2017
Finance professor Sattar Mansi co-authored a study that examined the effect on corporate decision making of investors who intend to hold on to their investments for more than a year and trade infrequently – known as long-term investment horizons.
Specifically, Mansi and his co-authors looked at two focus questions: whether long-term investors improve a firm’s managerial decision making and, if so, whether this generates better returns for shareholders. For their work on this topic, Mansi and his co-authors were recently presented with the Wharton-WRDS Outstanding Paper Award.
“Our paper is the first to show that long-term investors influence a wide range of managerial behaviors in publicly traded firms and thus prevent a significant destruction of shareholder value,” the co-authors wrote.
The findings of their research found that long-term investors have an impact on managerial behavior by monitoring corporate managers. Looking at the impact on investment and financing, the researchers also found that long-term investors strengthen governance and cause a decrease in various types of investment activity as well as external financing, but they lead to an increase in payouts to shareholders.
Longer investor horizons, Mansi said, is one of the most important mechanisms to counter corporate mismanagement through the promotion of greater diversification along business, industry, and geographic lines, as well as across customers and products. Read related article