The Mutual Friend: Dual Holder Monitoring and Firm Investment Efficiency

Miguel Antón and Luca Lin

The Review of Corporate Finance Studies, 2020, vol. 9, issue 1, 81-115

Abstract: We investigate the influence of simultaneous equity holdings by creditors (dual holders) on investment efficiency. Such creditors have stronger incentives and power to monitor firm investment as they have cash flow and control rights from both debt and equity sides. We provide evidence that dual holders, particularly noncommercial bank dual holders, significantly mitigate overinvestment. For high growth firms and those subject to debt overhang, dual holders also alleviate underinvestment. Equity value increases at the presence of dual holders. Our results indicate that by improving firm investment efficiency, dual holders not only make creditor investments safer but also create value for shareholders.Received March 26, 2019; editorial decision September 17, 2019 by Editor Isil Erel.

Keywords: G23; G31; G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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