Abstract

https://ssrn.com/abstract=1941902
 
 

References (12)



 


 



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


Roni Michaely


Johnson@Cornell Tech, Cornell University

Jillian A. Popadak


Duke University - Fuqua School of Business

Christopher J. Vincent


U.S. Securities and Exchange Commission

February 22, 2017


Abstract:     
U.S. corporate leverage has decreased markedly since 1992. We find greater institutional ownership explains this deleveraging trend. Without institutions' influence, total leverage would be eight percentage points higher today. Detection of this relationship was elusive since researchers often combine all years and institutions. Yet legal barriers to institutional activism persisted until 1992. And while hedge funds may advocate for more debt, other institutional investors drive the deleveraging. We find active institutions with longer investment horizons drive the deleveraging. Their desire for change balances short-term gains with long-term financial distress. Supporting this conclusion, we find high-leverage and high-distress firms deleverage more, and they offset debt reductions with other agency-reducing incentives (i.e., covenants and dividends).

Number of Pages in PDF File: 68

Keywords: Corporate Leverage; Institutional Investors; Passive Institutions; Active Institutions; Hedge Funds; Corporate Governance; Shareholder Power; U.S. Securities and Exchange Commission; Agency Costs; Financial Distress; Financial Stability; Capital Structure; Debt Structure

JEL Classification: G3, G32, G34, G38, K22, E44


Open PDF in Browser Download This Paper

Date posted: October 10, 2011 ; Last revised: February 24, 2017

Suggested Citation

Michaely, Roni and Popadak, Jillian A. and Vincent, Christopher J., The Deleveraging of U.S. Firms and Institutional Investors' Role (February 22, 2017). Available at SSRN: https://ssrn.com/abstract=1941902 or http://dx.doi.org/10.2139/ssrn.1941902

Contact Information

Roni Michaely (Contact Author)
Johnson@Cornell Tech, Cornell University ( email )
111 8th Avenue #302
New York, NY 10011
United States
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

Feedback to SSRN


Paper statistics
Abstract Views: 4,511
Downloads: 1,064
Download Rank: 14,773
References:  12