Short-Term Expectations in Listed Firms: The Mitigating Impact of Private Equity Owners

Abstract

We report empirical evidence regarding the disciplining role of different institutional and other owners in reducing managerial myopia. Using data from a large Nordic survey, we find that companies to a reasonably high degree feel that external pressure for a good result in the short-term generates conflict with the company’s long-term goals. We test for the effect of several ownership types, and find that especially a large private equity owner is able to significantly reduce perceived pressure for short-term actions. We also find support for a behavioral characteristic: younger managers feel significantly more pressure. Firms subject to higher pressure undertake more actions to accommodate that pressure. Again, the impact of especially a large private equity owner is beneficial because such firms undertake significantly less often actions that are likely to destroy value, such as deprioritizing their long-term investments or R&D.