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Institutional ownership stability and the cost of debt

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  • Elyasiani, Elyas
  • Jia, Jingyi (Jane)
  • Mao, Connie X.
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    Abstract

    This study documents that the stability of institutional ownership plays an important role in determining the cost of debt. After controlling for other determinants of the cost of debt, and correcting for the endogeneity of institutional ownership stability, three major results are uncovered. First, there is a robust negative relationship between the cost of debt and institutional ownership stability. Second, institutional ownership stability plays a bigger role in determining the cost of debt, than the institutional ownership level commonly used in the literature. Third, institutional ownership stability affects the cost of debt to a greater extent for firms that are subject to more severe information asymmetry and greater agency costs of debt.

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    File URL: http://www.sciencedirect.com/science/article/B6VHN-506J3V1-1/2/c687e803846fcc2a3af85b9bb193dccb
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 13 (2010)
    Issue (Month): 4 (November)
    Pages: 475-500

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    Handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:475-500

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Institutional ownership stability Corporate governance Agency problems Cost of debt;

    References

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    Cited by:
    1. Callen, Jeffrey L. & Fang, Xiaohua, 2013. "Institutional investor stability and crash risk: Monitoring versus short-termism?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3047-3063.
    2. Attig, Najah & Cleary, Sean & El Ghoul, Sadok & Guedhami, Omrane, 2012. "Institutional investment horizon and investment–cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1164-1180.
    3. Ruiz-Mallorquí, María Victoria & Santana-Martín, Domingo J., 2011. "Dominant institutional owners and firm value," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 118-129, January.

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