Abstract

http://ssrn.com/abstract=1941902
 
 

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The Deleveraging of U.S. Firms and Institutional Investors' Role


Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

Jillian A. Popadak


Duke University - Fuqua School of Business

Christopher J. Vincent


U.S. Securities and Exchange Commission

June 5, 2014


Abstract:     
Corporate leverage is important for economic stability and decreased markedly in the U.S. since 1992. In contrast to press coverage of hedge funds increasing corporate debt, we find increases in institutional ownership, primarily by mutual funds, account for part of this deleveraging. We use implied mutual fund trades constructed from individual-investor flows as exogenous variation in institutional ownership. Supporting the hypothesis institutions contributed to the deleveraging, our estimates increase significantly after regulatory reforms incentivized stronger governance, and an agency mechanism explains the interrelation. Counterfactual simulations indicate aggregate leverage would have been eight percentage points higher today without institutions' influence.

Number of Pages in PDF File: 65

Keywords: Capital Structure, Institutional Investors, Mutual Funds, Individual Investors, Corporate Governance, Agency Costs, Corporate Leverage, Credit Default Swaps, Arm's Length Debt, Bank Loans, Covenants

JEL Classification: G3, G32, G31, G23, E44


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Date posted: October 10, 2011 ; Last revised: June 30, 2015

Suggested Citation

Michaely, Roni and Popadak, Jillian A. and Vincent, Christopher J., The Deleveraging of U.S. Firms and Institutional Investors' Role (June 5, 2014). Available at SSRN: http://ssrn.com/abstract=1941902 or http://dx.doi.org/10.2139/ssrn.1941902

Contact Information

Roni Michaely (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
Jillian A. Popadak
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
Christopher J. Vincent
U.S. Securities and Exchange Commission ( email )
100 F St, NE
Washington, DC 20549
United States
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