The Horizon of Investors' Information and Corporate Investment

The quality of investors' information across different horizons has real effects. When managers care about the effect of investment on their stock price, a decline in the informativeness of investors' signals about long-term cash flows leads firms with longterm projects to cut investment more than firms with short-term projects. Using a novel, hand-collected measure of project horizon, we confirm this hypothesis: relative to firms with short-term projects, the investment of firms with long-term projects decreases by 3.6% following a one-standard deviation drop in the quality of investors' long-term information. This effect becomes larger when managers prioritize current stock price.