Institutional Dual-holders and Corporate Disclosures: A Natural Experiment

61 Pages Posted: 10 Apr 2021 Last revised: 22 Nov 2024

See all articles by Lin Cheng

Lin Cheng

The University of Arizona - Eller College of Management

Qiang Cheng

Singapore Management University - School of Accountancy

Liwei Weng

Northeastern University - Accounting Group

Mark Yuzhi Yan

Hong Kong Baptist University

Date Written: November 18, 2024

Abstract

This study examines the impact of the presence of institutional dual-holders, whose portfolios hold both loans and equity securities of the same firms, on those firms’ voluntary disclosures. Using mergers between institutional shareholders and lenders to the same firms as exogenous shocks to identify firms with institutional dual-holders that have high relative equity ownership, we document that such firms are less likely to provide management forecasts and disclose fewer voluntary 8-K items. In cross-sectional analyses, we find that the reduction in voluntary disclosures is more pronounced when institutional dual-holders have higher board representation and when firms have lower litigation risk. In addition, we find that firms with institutional dual-holders provide more private disclosures to their lenders via loan contract covenants. Additional analyses indicate that the impact of institutional dual-holders on corporate disclosures is driven by both their monitoring and trading incentives.

Keywords: institutional investors, dual-holders, corporate disclosures, monitoring, trading

JEL Classification: G21, G23, G34, M41

Suggested Citation

Cheng, Lin and Cheng, Qiang and Weng, Liwei and Yan, Mark Yuzhi, Institutional Dual-holders and Corporate Disclosures: A Natural Experiment (November 18, 2024). Forthcoming in Contemporary Accounting Research, Singapore Management University School of Accountancy Research Paper No. 2025-197, Available at SSRN: https://ssrn.com/abstract=3812051 or http://dx.doi.org/10.2139/ssrn.3812051

Lin Cheng

The University of Arizona - Eller College of Management ( email )

McClelland Hall, Room 301Q
1130 E. Helen Street
Tucson, AZ 85721
United States

Qiang Cheng

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore

Liwei Weng (Contact Author)

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Mark Yuzhi Yan

Hong Kong Baptist University ( email )

Hong Kong

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