Investment Horizons and Information

We examine the relation between institutions' investment horizons on firms' financing and investment decisions. Firms with larger short-term institutional ownership use less debt financing and invest more in corporate liquidity. In contrast, firms with larger long-term institutional ownership use more internal funds, less external equity financing, and preserve investments in long-term assets. These results are primarily driven by the variation in informational preferences of different institutions. We argue that short-term (long-term) institutions collect and use value-neutral (value-enhancing) information