Passive Investors and Loan Spreads

Konrad Adler, Sebastian Doerr and Xingyu Sonya Zhu
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Konrad Adler: University of St. Gallen - School of Finance; Swiss Finance Institute
Sebastian Doerr: Bank for International Settlements; Centre for Economic Policy Research (CEPR)
Xingyu Sonya Zhu: Bank for International Settlements (BIS) - Monetary and Economic Department

No 25-105, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Over the past decades, index funds have amassed substantial ownership stakes in publicly traded firms, which raises questions about their influence on governance and monitoring. This paper examines how banks adjust their loan pricing when firms have a higher share of passive index fund investors as shareholders. Using syndicated loan data, we find that loan spreads increase with passive ownership, and provide evidence consistent with higher loan spreads reflecting increased risk due to reduced shareholder oversight. Supporting this interpretation, we find stronger effects among well-governed and informationally opaque firms, where shareholder oversight is more impactful. However, the increase in loan spreads is not fully accounted for by changes in traditional measures of firm risk. Suggestive evidence points towards banks increasing their monitoring intensity in response to changes in shareholder composition, which is costly and reflected in loan spreads.

Keywords: Passive Ownership; Institutional Investors; Bank Monitoring; Syndicated Loans (search for similar items in EconPapers)
JEL-codes: G21 G23 G32 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2025-08
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp25105

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