Institutional dual holdings and risk-shifting: Evidence from corporate innovation

Huan Yang

Journal of Corporate Finance, 2021, vol. 70, issue C

Abstract: This paper analyzes the impact of shareholder-creditor conflicts on corporate risk-taking. Specifically, I examine the role played by institutional dual-holders (i.e., those simultaneously holding the same firm's debt and equity) in corporate innovation. Baseline results show that firms held by dual-holders generate fewer but more valuable patents. To alleviate endogeneity concerns, I use a difference-in-differences approach based on financial institution mergers. Further analysis suggests that decreased sensitivity of managerial compensation to firm risk might be a possible channel. Overall, I provide new evidence that shareholder-creditor conflicts indeed exist and lead to risk-shifting, and that dual ownership can partially mitigate this problem.

Keywords: Shareholder-creditor conflicts; Dual ownership; Risk-shifting; Asset substitution; Innovation (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 G34 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921002108

DOI: 10.1016/j.jcorpfin.2021.102088

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