Common Ownership and Debt Default Risk

Li Li, Erxia Tian and Wenjun Wei

Emerging Markets Finance and Trade, 2025, vol. 61, issue 8, 2507-2533

Abstract: Corporate debt default has caused huge losses to investors and the market, how to reduce the risk of corporate debt default and promote the healthy development of the capital market has been widely concerned. Using a sample of Chinese A-shared listed company data, this study examines the impact of common institutional ownership (CIO) on corporate default risk and its influencing mechanisms. Empirical research shows that CIO is negatively associated with corporate default risk, which supports a collaborative governance view. CIO can dampen corporate debt default risk by exerting resource and governance effects. Cross-sectional analyses show that CIO has a more significant mitigating effect on debt default risk for firms with high debt-servicing pressures, low audit quality, and weak market competition. Further, the results of the article suggest that there are dynamic differences in the impact of common institutional investors on default risk. The article provides new evidence on the market role of CIO from the perspective of default risk, which enriches related research and provides a decision-making reference for regulating co-institutional shareholding and reducing corporate default risk.

Date: 2025
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DOI: 10.1080/1540496X.2025.2454403

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