Transient Institutional Ownership, Costly External Finance, and Corporate Cash Holdings

We investigate and robustly show that transient institutional ownership has a positive effect on the level and value of corporate cash holdings. Further, using a regression discontinuity design exploiting the Russell 1000/2000 index reconstitution as an exogenous shock to transient institutional ownership, we show that the effects are causal. Additionally, our analysis shows that transient institutions exacerbate debtholder-shareholder conflicts, 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, debtholder-shareholder conflicts, stock price crash risk

JEL Classification: G23, G31, G32, G34

Suggested Citation: Suggested Citation

Im, Hyun Joong and Park, Heungju and Pathan, Shams and Faff, Robert W., Transient Institutional Ownership, Costly External Finance, and Corporate Cash Holdings (June 10, 2024). Journal of Business Finance & Accounting, 0[10.1111/jbfa.12840], Available at SSRN: https://ssrn.com/abstract=3514174 or http://dx.doi.org/10.1111/jbfa.12840