Institutional Cross-Ownership and Corporate Financing of Investment Opportunities

55 Pages Posted: 8 Jun 2018

See all articles by Yangyang Chen

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

Qingyuan Li

Wuhan University - School of Economics and Management

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: May 23, 2018

Abstract

When institutional blockholders cross-own multiple firms within the same industry, they are expected to have more private information about each firm, which can, in turn, improve monitoring and coordination. We document that cross-ownership facilitates external financing of investment opportunities, consistent with expectations of better post-financing outcomes when shareholders include institutional blockholders. We further show this effect to be stronger for firms with poorer quality public disclosure, indicating that institutional blockholders’ private information due to their cross-ownership of multiple related firms could mitigate the difficulties in monitoring opaque firms. Overall, our paper sheds insights into how having institutional blockholders with cross-ownership can affect a firm’s financing of its investment opportunities.

Keywords: Cross-ownership, Investment opportunity, Corporate financing

JEL Classification: G10, G23, G32

Suggested Citation

Chen, Yangyang and Li, Qingyuan and Ng, Jeffrey, Institutional Cross-Ownership and Corporate Financing of Investment Opportunities (May 23, 2018). Available at SSRN: https://ssrn.com/abstract=3183581 or http://dx.doi.org/10.2139/ssrn.3183581

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

Qingyuan Li

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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