The Economic Significance of Long-Term plans


KKS Advisors & CECP’s Strategic Investor Initiative / November 2018
Sakis Kotsantonis, Christina Rehnberg, George Serafeim, Brian Tomlinson, Bronagh Ward

Institutional investors act when they hear how companies will create value over the long-term. In our study, The Economic Significance of Long-Term Plans published in collaboration with CECP’s Strategic Investors Initiative (SII), an abnormal change in market returns and an increase in trade volume is observed after a company’s CEO presented a long-term plan to institutional investors. This is the first time the reaction to a CEO-presented long-term plan has been quantified and is early evidence that the audience of institutional investors find the information in these presentations decision-relevant.

Short-termism in capital markets has increasingly become a concern for both companies and the investor community. Although there have been widespread calls for investors and companies to pay more attention to the long-term, until recently there was no platform for companies to exchange long-term information with their long-term investors. CECP’s Strategic Investor Initiative (SII) presents a solution to this structural gap in corporate-shareholder communications, with CEO-Investor Forums providing the stage for CEOs to share their long-term strategic plans with institutional investors.

The purpose of this research is to understand whether investors consider the long-term information provided at the CEO-Investor Forum as decision-relevant and to assess the quality of specific disclosures and the overall long-term plan. We do this by examining the capital market reactions following the presentations and by creating a framework for assessing and structuring an effective long-term plan. We recognize that the sample we examine is small and therefore we regard our evidence as a first attempt towards creating a market infrastructure for the systematic and rigorous examination of strategic long-term plans.