What is the Role of Institutional Investors in Corporate Capital Structure Decisions? A Survey Analysis

48 Pages Posted: 1 Jul 2018

See all articles by Stephen Brown

Stephen Brown

New York University (NYU) - Leonard N. Stern School of Business

Marie Dutordoir

University of Manchester - Manchester Business School

Chris Veld

Monash University

Yulia V. Veld-Merkoulova

Monash University - Department of Finance; Financial Research Network (FIRN)

Date Written: June 7, 2018

Abstract

We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors’ responses also support pecking order and market timing theory. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Our findings suggest a first-order impact of investor preferences on securities issuance and design choices.

Keywords: Capital Structure; Capital Supply; Institutional Investors; Agency Costs; Security Issuance; Security Design; Financial Constraints

JEL Classification: G11; G30; G32

Suggested Citation

Brown, Stephen and Dutordoir, Marie and Veld, Chris and Veld-Merkoulova, Yulia V., What is the Role of Institutional Investors in Corporate Capital Structure Decisions? A Survey Analysis (June 7, 2018). Available at SSRN: https://ssrn.com/abstract=3197968 or http://dx.doi.org/10.2139/ssrn.3197968

Stephen Brown

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Marie Dutordoir

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Yulia V. Veld-Merkoulova

Monash University - Department of Finance ( email )

Building H
Caulfield, Victoria 3145
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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