Mutual Fund Transparency and Corporate Myopia

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.