Captured Equity Holders and Risk Shifting

52 Pages Posted: 14 Nov 2022

See all articles by Abed El Karim Farroukh

Abed El Karim Farroukh

Indiana University - Kelley School of Business

Date Written: October 31, 2022

Abstract

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

Farroukh, Abed El Karim, Captured Equity Holders and Risk Shifting (October 31, 2022). Available at SSRN: https://ssrn.com/abstract=4269272 or http://dx.doi.org/10.2139/ssrn.4269272

Abed El Karim Farroukh (Contact Author)

Indiana University - Kelley School of Business ( email )

United States

HOME PAGE: http://https://sites.google.com/view/farroukh

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
53
Abstract Views
324
Rank
595,461
PlumX Metrics