Corporate governance benefits of mutual fund cooperation

Rex Wang Renjie, Patrick Verwijmeren and Shuo Xia

No 21/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Mutual fund families increasingly hold bonds and stocks from the same firm. We study the implications of such dual holdings for corporate governance and firm decision-making. We present evidence that dual ownership allows financially distressed firms to increase investments and to refinance by issuing bonds with lower yields and fewer restrictive covenants. As such, dual ownership reduces shareholder-creditor conflicts, especially when families encourage cooperation among their managers. Overall, our results suggest that mutual fund families internalize the shareholder-creditor agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.

Keywords: corporate governance; debt overhang; investment; mutual funds (search for similar items in EconPapers)
JEL-codes: G23 G32 G34 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:212022

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