Institutional investment horizons, corporate governance, and credit ratings: International evidence

Hamdi Driss, Wolfgang Drobetz, Sadok El Ghoul and Omrane Guedhami

Journal of Corporate Finance, 2021, vol. 67, issue C

Abstract: Using a comprehensive set of firms from 57 countries over the 2000–2016 period, we examine the relation between institutional investor horizons and firm-level credit ratings. Controlling for firm- and country-specific factors, as well as for firm fixed effects, we find that larger long-term (short-term) institutional ownership is associated with higher (lower) credit ratings. This finding is robust to sample composition, alternative estimation methods, and endogeneity concerns. Long-term institutional ownership affects ratings more during times of higher expropriation risk, for firms with weaker internal corporate governance, and for those in countries with lower-quality institutional environments. Additional analysis shows that long-term investors facilitate access to debt markets for firms facing severe agency problems. These findings suggest that, unlike their short-term counterparts, long-term investors improve a firm's credit risk profile through effective monitoring.

Keywords: Institutional ownership; Investment horizons; Corporate governance; Credit ratings (search for similar items in EconPapers)
JEL-codes: G24 G32 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119920303187

DOI: 10.1016/j.jcorpfin.2020.101874

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