Institutional Ownership Stability and the Cost of Debt

50 Pages Posted: 13 Nov 2006

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance

Connie X. Mao

Temple University - Fox School of Business and Management; Temple University - Department of Finance

Date Written: November 7, 2006

Abstract

This study documents that stability of institutional ownership plays an important role in determining the cost of debt. After controlling for other determinants of the cost of debt, and correcting for the endogeneity of institutional ownership stability, three major results are uncovered; there is a robust negative relationship between the cost of debt and institutional ownership stability, institutional ownership stability is more important in determining the cost of debt than the institutional ownership level commonly used in the literature, and stable institutional ownership reduces the cost of debt by mitigating agency conflicts between shareholders and bondholders, shareholders and managers, and information asymmetry problems.

Keywords: Institutional ownership stability, corporate governance, agency problems, cost of debt

JEL Classification: G32

Suggested Citation

Elyasiani, Elyas and Jia, Jingyi and Mao, Connie X., Institutional Ownership Stability and the Cost of Debt (November 7, 2006). Available at SSRN: https://ssrn.com/abstract=943789 or http://dx.doi.org/10.2139/ssrn.943789

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance ( email )

Edwardsville, IL 62026
United States

Connie X. Mao

Temple University - Fox School of Business and Management ( email )

416 Alter Hall
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

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