Investor culture and corporate disclosure

F Brochet, H Li, PL Naranjo - Available at SSRN 3537994, 2023 - papers.ssrn.com
Available at SSRN 3537994, 2023papers.ssrn.com
We examine the effect of investor cultural long-term orientation on corporate disclosure and
its capital market consequences. Using a large cross-country panel, we find that, on
average, firms with a culturally more long-term oriented investor base use more long-term
oriented disclosure, especially for firms that invest in more capital expenditures and R&D.
Using firms' inclusion in the MSCI World Index, we find that when the investor base of firms
from short-term oriented countries becomes more long-term oriented, so does their …
Abstract
We examine the effect of investor cultural long-term orientation on corporate disclosure and its capital market consequences. Using a large cross-country panel, we find that, on average, firms with a culturally more long-term oriented investor base use more long-term oriented disclosure, especially for firms that invest in more capital expenditures and R&D. Using firms’ inclusion in the MSCI World Index, we find that when the investor base of firms from short-term oriented countries becomes more long-term oriented, so does their disclosure horizon. In contrast, firms’ investment in capital expenditures and R&D increases regardless of investors’ culture. Lastly, we find that changes in disclosure horizon driven by the shifting culture of the investor base decrease liquidity. Overall, while foreign institutional ownership fosters long-term investments, firms cater to investors’ cultural differences via disclosure, which can induce informational frictions.
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