Abstract
We conjecture that the presence of short-term institutional investors exacerbates agency conflicts between shareholders and creditors because short-term institutions might force firm managers to take myopic actions. Using the data on private debt to U.S. firms, we find that the investment horizons of institutional investors are negatively correlated with the number of loan covenants and loan spreads. We also document that short-term (long-term) institutional ownership is positively (negatively) correlated with the number of covenants, and that banks charge higher spreads on loans issued to firms with more short-term institutional ownership. These findings are consistent with our conjecture.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have