Institutional investors distraction and debt choice
ISSN: 0307-4358
Article publication date: 18 February 2022
Issue publication date: 22 April 2022
Abstract
Purpose
This study aims to investigate the impact of institutional investors distraction on firms' choice between bank debt and public debt.
Design/methodology/approach
The study employs the measure of institutional investors distraction from Kempf et al. (2017), which captures exogenous attention-grabbing events in other aspects of institutional investors' portfolios holdings to examine this research question. The study uses a sample of 16,047 firm-year observations comprising 2,521 US firms for the period of 2000–2016.
Findings
The result shows a significant positive association between institutional shareholder distraction and firms' bank ratio. Cross-sectional tests show that the positive association between institutional shareholders distraction and firms' bank ratio is stronger for firms in poorer information environments and for firms facing greater competitive threats from rivals.
Originality/value
This study underscores the important governance role played by institutional shareholders and the consequence when such a monitoring role is impaired. In particular, firms with distracted shareholders rely on expensive bank monitoring and scrutiny to supply their additional monitoring capacity.
Keywords
Acknowledgements
The authors acknowledge an anonymous reviewer for helpful comments.
Funding: The authors have no funding source to disclose.
Availability of data and material: All the data used in this study are available from the public sources or websites indicated in the paper.
Code availability: The code for obtaining the results in this paper are readily available.
Conflicts of interest/competing interests: The authors have no relevant financial or non-financial interests to disclose.
Citation
Asamoah, J.M., Dak-Adzaklo, C.S.P. and Ofosu, E. (2022), "Institutional investors distraction and debt choice", Managerial Finance, Vol. 48 No. 5, pp. 706-719. https://doi.org/10.1108/MF-12-2021-0601
Publisher
:Emerald Publishing Limited
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