Corporate Investment Horizon and Information Quality
We study the role of information quality on the horizon of corporate investment. We measure projects' horizon from the textual discussions of firms' business plans in their filings. We show that the sensitivity of investment to changes in the quality of short-term and long-term information available to managers depends on the horizon of firms projects. Higher information quality on a given horizon lowers the discount rates applied to cash flows at that horizon and increases projects' NPV. Thus, firms with short (long) horizons invest more when the quality of short-term (long-term) information is high, i.e,, the allocation of capital across short and long horizon firms depends on relative information quality. This channel also operates across the divisions conglomerates. The prevalence of short-horizon projects -- short-termism -- might be due to poor quality information about long-term cash flows.