HEC Research Papers Series,
HEC Paris

Abstract: We show that the quality of investors’ information across horizons has real effects. When managers focus on current stock prices, they under-invest if their price imperfectly reflects the value of their projects. We posit that this under-investment is larger when the horizon at which investors obtain information does not match the horizon of firms’ investment projects. Using a new hand-collected measure of projects' horizon, we test and confirm this hypothesis: Empirically, improvements in the quality of investors' information about long-term (short-term) cash flows induce firms with long-term (short-term) projects to invest more, particularly when managers prioritize current stock prices.

Keywords: Project Horizon; Short-termism; Information Quality; Forecasting horizon; Forecasts’ informativeness; Managerial Incentives

JEL-codes: D84; G14; G17; M41

55 pages, November 15, 2022

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