Corporate Debt Maturity and Monitoring by Institutional Investors

62 Pages Posted: 8 Mar 2011 Last revised: 4 Jan 2012

Maria-Teresa Marchica

University of Manchester - Manchester Business School

Date Written: December 30, 2011

Abstract

I provide novel evidence that institutional investors, by influencing the maturity structure of corporate debt, play an active monitoring role. First, I find that institutional ownership is positively related to short-term debt and this relationship is not only statistically significant, but also economically sizeable. Second, I show that longer investment horizons and absence of potential business relations with the firm provide investors with stronger incentives to monitor managers by increasing the proportion of short-term debt in the company. This monitoring role is corroborated by robustness tests which reveal an increased probability of issuing short-term debt following a change in investor characteristics.

Keywords: Institutional Investors, Monitoring, Debt Maturity Structure

JEL Classification: G32, G34

Suggested Citation

Marchica, Maria-Teresa, Corporate Debt Maturity and Monitoring by Institutional Investors (December 30, 2011). Available at SSRN: https://ssrn.com/abstract=1781239 or http://dx.doi.org/10.2139/ssrn.1781239

Maria-Teresa Marchica (Contact Author)

University of Manchester - Manchester Business School ( email )

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