Citation:

Abstract:

Using conference calls transcripts, we measure the time horizon of corporate communication and planning. We show that firms with more short-term focus have a more short-term oriented investor base. Moreover, we find that more short-term oriented firms have higher stock price volatility, and that this effect is mitigated for firms with more long-term investors. We also find that short-term oriented firms have higher equity betas and as a result higher cost of capital. However, this result is not mitigated by the presence of long-term investors, consistent with these investors requiring an additional risk premium for holding the stock of firms with a short-term horizon. Overall, our evidence suggests that capital market short-termism is associated with greater risk and thus affects resource allocation.