Institutional Investor Horizons, Information Environment, and Firm Financing Decisions
69 Pages Posted: 15 Mar 2012 Last revised: 15 Aug 2019
Date Written: December 1, 2018
We provide evidence that investment horizons of institutional shareholders affect firms’ financing decisions. We find that short-term institutional ownership positively affects firms’ likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms’ financing decisions by shaping their information environment.
Keywords: Investor horizons, information asymmetry, capital structure, debt maturity, institutional ownership
JEL Classification: G32, D82, G20
Suggested Citation: Suggested Citation