Transient Institutional Ownership, Costly External Finance, and Corporate Cash Holdings
Journal of Business Finance & Accounting, 0[10.1111/jbfa.12840]
54 Pages Posted: 12 Feb 2020 Last revised: 26 Feb 2025
Date Written: June 10, 2024
Abstract
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