“Time Horizon and Corporate Investment” by Prof. Akguc

by Professor Serkan Akguc

The introduction and conclusion of the provided article examine the relationship between national cultural time horizons and corporate investment behavior, focusing on private versus public firms across 75 countries. The authors assert that private firms, due to their concentrated ownership and reduced exposure to short-term pressures, are more directly influenced by long-term cultural norms compared to public firms. Using a novel dataset and leveraging indices like Hofstede’s Long-Term Orientation Index, the study highlights that private firms invest more in long-term assets in countries with cultures that emphasize long-term planning and savings.

The research adopts a comprehensive methodology, combining cross-country data with robust statistical analysis to control for potential biases and endogeneity. By examining over 900,000 private firms and 45,000 public firms globally, the study distinguishes how ownership structures and external market pressures shape investment decisions. For example, private firms, unlike public ones, are less impacted by the myopia of meeting short-term earnings targets, allowing cultural norms to more significantly guide their strategies. This distinction is further validated through alternative measures, including tax changes as exogenous shocks to investment opportunities.

In conclusion, the study underscores the economic significance of private firms and the necessity of including them in analyses of corporate behavior influenced by culture. The findings illuminate how private firms’ independence from short-term capital market dynamics enables a stronger alignment with cultural values, leading to greater investments in long-term assets. By bridging gaps in the literature, this work provides actionable insights into the interplay of culture and corporate decision-making, advocating for a broader focus on private firms in understanding global investment behaviors.

Professor Akguc‘s research interests include empirical corporate finance, ownership structure of firms, private equity, and start-up valuation.