Why Are Corporate Investment Horizons Shrinking? Uncovering the Spillover Effects of Shareholder Litigation

Mark R. DesJardine, Wei Shi, Yin Cheng

Research output: Contribution to journalArticlepeer-review

Abstract

Existing research shows that shareholder pressures can shorten firms’ investment horizons. Yet studies have so far been limited to the actions shareholders take directly toward a focal firm. Considering that shareholder pressures may spill over between organizations, we argue that firms shorten their investment horizons following shareholder-initiated lawsuits against their peers in an effort to boost their short-run performance and preempt being sued themselves. We further posit that the negative relationship between this form of litigation threat and a firm’s investment horizon is weakened among firms with more long-term shareholders or future-focused CEOs, both of which guard against managers becoming overly short-term oriented. An examination of 18 years of shareholder litigation data supports our theory. This study highlights shareholder litigation as a distinct form of shareholder voice and one that is sufficiently potent to create spillover effects between firms.

Original languageEnglish (US)
Pages (from-to)229-247
Number of pages19
JournalStrategy Science
Volume9
Issue number3
DOIs
StatePublished - Sep 2024

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Strategy and Management
  • Management Science and Operations Research
  • Management of Technology and Innovation

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