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Common institutional ownership and the cost of debt in Taiwan

Author

Listed:
  • Shi, Wei-Zhong
  • Hsiao, Ming-Chun
  • Huang, Tsun-Yi
  • Yu, Min-Teh

Abstract

We examine the impact of common institutional ownership (CIO) of firms in the same industry on their cost of bank loans using data on Taiwan-listed firms from 1996 to 2021. The evidence shows that CIO is negatively related to loan spreads. When decomposing our sample according to a firm's life cycle and family ownership, the negative relation is significant only in the mature stage of a firm's life cycle and for family-owned firms. The subsample evidence suggests that CIO enhances effective monitoring to increase firm value, lowering loan spreads. We also find that the negative relation becomes statistically insignificant during the financial crisis period because that CIO tends to reduce investments in the same industry, thus weakening its effect during the global financial crisis.

Suggested Citation

  • Shi, Wei-Zhong & Hsiao, Ming-Chun & Huang, Tsun-Yi & Yu, Min-Teh, 2024. "Common institutional ownership and the cost of debt in Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x2300272x
    DOI: 10.1016/j.pacfin.2023.102201
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    More about this item

    Keywords

    Common institutional ownership; Loan spread; Family-owned firms; Agecy cost; Life cycle; Financial crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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