Impact of Institutional Investors and Board Independence on Corporate Short-Termism: Longitudinal Evidence from Zimbabwe

Abstract

This study examines the effects of institutional investors and board independence on corporate short-termism, using panel data for 36 listed companies in Zimbabwe from 2010 to 2018. By using the Arellano-Bover/Blundell-Bond system Generalised Methods of Moments (Sys-GMM) dynamic estimator, this study effectively addresses autocorrelation, heteroscedasticity and endogeneity in panel data analysis. The empirical results of this study revealed that institutional investors significantly influence managers to make myopic investment decisions, whereas independent non-executive directors reduce managers’ myopic tendencies. Additional analyses of the results confirms that INEDs mitigate managers’ myopic behaviour, whereas institutional investors increase the managers’ myopic behaviour. More so, this study found a significant and positive relation between dedicated institutional ownership and capital expenditures, which suggests that dedicated institutional investors help to reduce short-termism. Given that the results show that past short-termism begets more short-termism, the results of this study can help shareholders, policymakers, regulators and executives to understand the influence of institutional investors and board independence on long-term corporate investment decisions, which is an unexplored issue from the Zimbabwean context.