What types of bondholders impede corporate innovative activities?

Iftekhar Hasan, Jonathan O Brien and Pengfei Ye

No 23/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This study investigates whether institutional bond blockholders (i.e., bond funds that hold more than 5% of a firm's outstanding bonds) impede firm innovative activities, and if they do, through which channels. We find that long-term bond blockholders do not discourage firms from conducting innovative activities. Short-term bond blockholders, however, significantly reduce both firm investments in R&D and the innovative quality of these investments. Furthermore, their negative impact is stronger than the negative impact of short-term stockholders. Our results cannot be fully explained by short-term bondholders' a priori investment preferences and are robust to possible endogeneity concerns. Overall, they suggest that the option of the 'Wall Street walk' allows bondholders to exert considerable influence on firms' risk-taking decisions.

Keywords: Bondholder; Innovation; Investment Horizon; Wall Street Walk (search for similar items in EconPapers)
JEL-codes: G23 G31 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_023

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