Bonds Lie in the Portfolio of the Beholder: Do Bonds Affect Equity Monitoring?

47 Pages Posted: 25 Nov 2020 Last revised: 18 Nov 2021

See all articles by Todd A. Gormley

Todd A. Gormley

Washington University in St. Louis; European Corporate Governance Institute (ECGI)

Manish Jha

Georgia State University - Department of Finance

Date Written: November 10, 2020

Abstract

We analyze whether institutional investors’ corporate bond holdings are associated with how actively they vote and monitor their equity investments. We document that institutions conduct more governance research and are less likely to follow proxy advisor vote recommendations for companies whose bonds represent a larger proportion of their portfolio. Consistent with bond holdings influencing how actively institutions monitor their equity investments, companies with low ESG scores, where credit-rating agencies are more likely to make negative risk assessments, and bonds held in mixed-asset funds, where fixed income managers are more likely to influence their equity counterparts, drive these findings. Creditor- shareholder conflicts cannot explain these patterns. Overall, our findings suggest that bond holdings contribute to institutions’ incentive to be engaged monitors.

Keywords: bonds, governance, institutional investors, attention, voting

JEL Classification: G23, G30, G32, G34, K22

Suggested Citation

Gormley, Todd A. and Jha, Manish, Bonds Lie in the Portfolio of the Beholder: Do Bonds Affect Equity Monitoring? (November 10, 2020). Available at SSRN: https://ssrn.com/abstract=3719187 or http://dx.doi.org/10.2139/ssrn.3719187

Todd A. Gormley (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)

HOME PAGE: http://www.gormley.info

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Manish Jha

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States
3142508129 (Phone)

HOME PAGE: http://mjha91.github.io

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