Journal Article

Mutual Fund Transparency and Corporate Myopia

Vikas Agarwal, Rahul Vashishtha and Mohan Venkatachalam

in The Review of Financial Studies

Published on behalf of Society for Financial Studies

Volume 31, issue 5, pages 1966-2003
Published in print May 2018 | ISSN: 0893-9454
Published online November 2017 | e-ISSN: 1465-7368 | DOI: https://dx.doi.org/10.1093/rfs/hhx125
Mutual Fund Transparency and Corporate Myopia

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  • Financial Institutions and Services
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Abstract

Pressure from institutional money managers to generate profits in the short run is often blamed for corporate myopia. Theoretical research suggests that money managers’ short-term focus stems from their career concerns and greater fund transparency can amplify these concerns. Using a difference-in-differences design around a regulatory shock that increased the transparency of fund managers’ portfolio choices, we examine whether increased transparency encourages myopic corporate investment behavior. We find that corporate innovation declines following the regulatory shock. Moreover, evidence from mutual fund trading behavior corroborates that the increased short-term focus of money managers drives the results.

Received February 8, 2016; editorial decision August 31, 2017 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University PressWeb site next to the link to the final published paper online.

Journal Article.  18499 words.  Illustrated.

Subjects: Financial Institutions and Services ; Financial Regulation ; Corporate Governance ; Accounting

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