Abstract
Institutional ownership is negatively related, both statistically and economically, to loan spreads. This relationship is stronger for firms with higher degrees of information asymmetry. Institutional investors play an active role in corporate governance by reducing the risk levels of their portfolio companies through effectively monitoring management. Further, at high levels of concentration, institutional ownership has the tendency to increase the cost of loans due to the agency cost of debt. Nonetheless, companies with institutional investors pay significantly lower borrowing costs than companies without institutional shareholders.
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