Local institutional investors and debt maturity

Wang, Qin (Emma) and Jun Zhang

Journal of Financial Markets, 2023, vol. 62, issue C

Abstract: We examine the relation between the geographic proximity of institutional investors and debt maturity. We hypothesize and find that firms with more or closer local institutional investors have shorter maturity debt. Analyses based on new debt issues and using SOX as a natural experiment and firm headquarter relocations as exogenous shocks indicate a causal effect of local institutional monitoring on debt maturity. Tests of the underlying mechanism suggest that firms monitored by local institutional investors choose shorter maturity debt to reduce debt and equity agency costs. The results demonstrate that local institutional investors affect firms’ debt maturity choices.

Keywords: Institutional investors; Debt maturity; Agency cost (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:62:y:2023:i:c:s1386418122000507

DOI: 10.1016/j.finmar.2022.100758

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