What is the Role of Institutional Investors in Corporate Capital Structure Decisions? A Survey Analysis
48 Pages Posted: 1 Jul 2018
Date Written: June 7, 2018
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
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