Abstract
We analyze how creditors' simultaneous debt and equity holding affects firm investment policies. Dual ownership firms are less likely to have capital expenditure restrictions in loan contracts and exhibit a larger decrease in asset volatility after loan origination relative to firms with no dual ownership. The effect varies in predicted ways with borrowers' monitoring needs and dual owners' monitoring capacity. Dual ownership firms are also more likely to be granted an unconditional waiver and do not significantly reduce debt issuance or investment expenditures after a financial covenant violation. Our results highlight how dual ownership can help mitigate shareholder-creditor conflicts.
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