Motivated by concerns about managerial myopia, I examine how the effects of institutional ownership on firms' long-term investments vary across life cycle stages. I find that the effects of institutional ownership on long-term investments in both capital and research and development (R&D) are more positive in transitory life cycle stages relative to sustainable life cycle stages. These results indicate that life cycle patterns explain important variation in the relation between institutional ownership and long-term investments and highlight the importance of firms' life cycles in measuring governance effects. I also find that having a large number of institutional owners with relatively small ownership stakes has a more positive effect than having a smaller number of institutional owners with relatively large ownership stakes. Using the discontinuity between the Russell 1000 and 2000 indexes as an identification strategy, I also provide evidence in support of a causal effect of institutional ownership on firms' long-term investments. Additional tests indicate my results are not driven by firms that are more likely to over-invest.
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