Institutional Cross-Ownership and Corporate Financing of Investment Opportunities
55 Pages Posted: 8 Jun 2018
Date Written: May 23, 2018
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: Suggested Citation