What types of bondholders impede corporate innovative activities?
AbstractThis 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.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 23/2013.
Length: 51 pages
Date of creation: 03 Oct 2013
Date of revision:
bondholder; innovation; investment horizon; Wall Street walk;
Find related papers by JEL classification:
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-11 (All new papers)
- NEP-CSE-2013-10-11 (Economics of Strategic Management)
- NEP-ENT-2013-10-11 (Entrepreneurship)
- NEP-INO-2013-10-11 (Innovation)
- NEP-KNM-2013-10-11 (Knowledge Management & Knowledge Economy)
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