Corporate Debt Maturity and Monitoring by Institutional Investors
University of Manchester - Manchester Business School
December 30, 2011
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.
Number of Pages in PDF File: 62
Keywords: Institutional Investors, Monitoring, Debt Maturity Structure
JEL Classification: G32, G34
Date posted: March 8, 2011 ; Last revised: January 4, 2012