Using new patent-based industry-level measures of the horizons and values of corporate investment, I find that in response to an increase in long-term institutional ownership firms reallocate their capital toward divisions with long product life-cycle and high innovation value, which leads to longer corporate investment horizons and higher investment values at firm level. To disentangle investors’ effects from spurious correlations, I employ a widely-adopted identification strategy based on the discontinuity in long-term ownerships around Russell 1000/2000 index thresholds. The effects are strongest among firms with more undervaluation. I also document a possible channel through which investors affect corporate investment horizon - the managerial incentive channel. These results are consistent with the horizon alignment hypothesis that long-term investors could mitigate inefficient corporate short-termisms in real investment decisions among undervalued firms.

Keywords: Corporate investment horizon, Investor horizon, Incentive horizon, Institutional investors, Undervaluation, Regression discontinuity design

JEL classification: G23, G30, G31, G32, G34