Institutional Investor Horizons, Information Environment, and Firm Financing Decisions

69 Pages Posted: 19 Apr 2012 Last revised: 13 Dec 2018

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

Kangkang Fu

Hong Kong Baptist University

Endong Yang

University of Macau

Date Written: December 12, 2018

Abstract

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

Chang, Xin and Chen, Yangyang and Fu, Kangkang and Yang, Endong, Institutional Investor Horizons, Information Environment, and Firm Financing Decisions (December 12, 2018). Available at SSRN: https://ssrn.com/abstract=2042476 or http://dx.doi.org/10.2139/ssrn.2042476

Xin Chang

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Yangyang Chen (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Kangkang Fu

Hong Kong Baptist University ( email )

34 Renfrew Road
Wing Lung Bank Building for Business
Hong Kong
Hong Kong

Endong Yang

University of Macau ( email )

Macau

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