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This paper investigates the effects of institutional investors on long-term corporate investment, studying corporate social responsibility as an example for such investments. I find that investor horizon strongly matters. Short-term investors exert pressure on managers who, in turn, cut long-term investments. But firms held by long-term investors may not be better off, as poorly monitored managers tend to overinvest when they bear no short-term pressure. Among long-term investors, only those who hold large ownership blocks monitor managers to ensure that they neither under- nor overinvest. Overall, these findings confirm managerial myopia and empire building theory, emphasizing the importance of blockholders.
Author(s):
Simon Gloßner
Catholic University Eichstätt-Ingolstadt
Germany