Captured Equity Holders and Risk Shifting
52 Pages Posted: 14 Nov 2022
Date Written: October 31, 2022
I study how fund families’ simultaneous debt and equity holdings affect risk shifting by portfolio firms. Families generate more income from debt in one-third of their dual holding positions; I argue their equity in those positions is captured. Firms with more captured dual holders exhibit less risk-shifting behavior. To establish causality, I exploit cross-family fund acquisitions as plausibly exogenous shocks to firm-level captured dual holders. Finally, captured equity votes favor creditors of distressed firms, and CEOs of firms with more captured dual holders have lower risk-taking incentives. Overall, evidence in this paper suggests that fund families internalize risk-shifting effects.
Keywords: Fund Families, Risk Shifting, Dual Holdings
JEL Classification: G23, G30
Suggested Citation: Suggested Citation