Transient Institutional Ownership, Costly External Finance, and Corporate Cash Holdings
41 Pages Posted: 12 Feb 2020 Last revised: 1 Jun 2021
Date Written: May 30, 2021
We investigate how transient institutional ownership influences the level and value of cash holdings. We show that transient institutional ownership has a positive effect on cash holdings, and this linkage is more pronounced when stock and credit market conditions are less favorable. Transient institutions exacerbate debt-holder-shareholder conflicts (e.g., short-termism) and increase stock price crash risk, thereby increasing the cost of debt. Overall, our results suggest that transient institutions make cash holdings more valuable because financing by debt becomes more costly.
Keywords: Transient Institutional Ownership, Cash Holdings, Debt-Holder-Shareholder Conflicts, Stock Price Crash Risk
JEL Classification: G23, G31, G32, G34
Suggested Citation: Suggested Citation