Shareholder investment horizons and bank debt financing

Brandon N. Cline, Xudong Fu and Tian Tang

Journal of Banking & Finance, 2020, vol. 110, issue C

Abstract: This paper investigates the impact of institutional shareholder investment horizons on a firm's use of bank debt. We find that short-term institutional ownership of the borrowing firm has a negative effect on bank debt financing. This finding provides evidence consistent with the monitoring avoidance incentives of short-term shareholders. In contrast, long-term institutional ownership has a positive impact on the firm's reliance on bank debt financing. These effects are attenuated by higher managerial ownership and more motivated investors and are exacerbated by higher information opacity. Our results are robust to potential endogeneity concerns, the potential use of bonds, firm size effects, and alternative measures of investment horizon. Investigating the effects of investment horizons on other aspects of debt corroborates our main findings.

Keywords: Investor horizon; Debt financing; Monitoring avoidance (search for similar items in EconPapers)
JEL-codes: G3 G31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:110:y:2020:i:c:s0378426619302316

DOI: 10.1016/j.jbankfin.2019.105656

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