Institutional Ownership Stability and the Cost of Debt
50 Pages Posted: 13 Nov 2006
Date Written: November 7, 2006
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: Suggested Citation