Investor Short-Termism and Firm Value
By Øyvind Bøhren, Richard Priestley and Bernt Arne Ødegaard,
Anecdotes, surveys, and most theoretical models suggest that investor short-termism reduces firm value. This happens if
short-termist investors force managers into myopic decision making that maintains high current earnings at the expense of
long-run value maximization. Short-termist investors may also be poor monitors, especially under delegated monitoring. This
paper provides the first direct evidence on this issue by showing empirically how the ownership duration of different
investor types, such as financial institutions and individuals, interacts with firm value. We find that the value of the firm
is negatively affected by longer ownership duration of large financial and industrial investors, but that the effect is
positive the longer large individuals own the firm. These results indicate that investors who are likely to be the most
short-termist destroy firm value, and more so the longer they stay.
Keywords: Corporate Governance, Short-termism, Ownership Duration, Patient Ownership.
This research is found in the academic paper: pdf (Adobe acrobat) file. (Updated aug 2009)
The research is also in an longer
with additional analysis and results available separately. (April 2006)
This paper has been presented at various conferences and seminars. A list of seminars, which allows for downloading of
overheads, is found here