Distracted institutional shareholders and debt maturity

Adrian (Wai Kong) CHEUNG; Joye KHOO; Rui WANG

doi:10.1111/jfir.12419

Distracted institutional shareholders and debt maturity

Adrian (Wai Kong) CHEUNG^*
, Joye KHOO
, Rui WANG

^*Corresponding author for this work

Department of Accountancy

Research output: Journal Publications › Journal Article (refereed) › peer-review

1 Citation (Scopus)

Abstract

We examine whether institutional shareholders’ distraction affects corporate debt maturity decisions. We find that firms with distracted shareholders are associated with lengthened debt maturity. The effect becomes stronger for firms with high information asymmetry or those with high levels of financial constraint. When distraction is high and debt maturity is low, firms hold more cash and use that cash in value-destroying acquisitions. This supports the prevalence of agency problems when institutional shareholders are distracted. The impact of distraction is persistent and affects the debt maturity decision in the future. Our findings are robust to endogeneity and other concerns.

Original language	English
Pages (from-to)	545-577
Number of pages	33
Journal	Journal of Financial Research
Volume	48
Issue number	2
Early online date	14 Jun 2024
DOIs	https://doi.org/10.1111/jfir.12419
Publication status	Published - Jun 2025

Bibliographical note

We thank Mostafa Hasan, Thanh Le, Bin Li, Erkan Yalcin, Dane Etheridge, and John Gould for helpful comments and suggestions provided on earlier versions of this manuscript. We also thank the participants at the seminars at University of Macau, City University of Macau, and Curtin University, for their comments and suggestions. Any errors are our own.

Publisher Copyright:
© 2024 The Southern Finance Association and the Southwestern Finance Association.

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10.1111/jfir.12419Licence: Other

https://onlinelibrary.wiley.com/doi/10.1111/jfir.12419

Cite this

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title = "Distracted institutional shareholders and debt maturity",

abstract = "We examine whether institutional shareholders{\textquoteright} distraction affects corporate debt maturity decisions. We find that firms with distracted shareholders are associated with lengthened debt maturity. The effect becomes stronger for firms with high information asymmetry or those with high levels of financial constraint. When distraction is high and debt maturity is low, firms hold more cash and use that cash in value-destroying acquisitions. This supports the prevalence of agency problems when institutional shareholders are distracted. The impact of distraction is persistent and affects the debt maturity decision in the future. Our findings are robust to endogeneity and other concerns.",

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note = "We thank Mostafa Hasan, Thanh Le, Bin Li, Erkan Yalcin, Dane Etheridge, and John Gould for helpful comments and suggestions provided on earlier versions of this manuscript. We also thank the participants at the seminars at University of Macau, City University of Macau, and Curtin University, for their comments and suggestions. Any errors are our own. Publisher Copyright: {\textcopyright} 2024 The Southern Finance Association and the Southwestern Finance Association.",

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AU - KHOO, Joye

AU - WANG, Rui

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PY - 2025/6

Y1 - 2025/6

N2 - We examine whether institutional shareholders’ distraction affects corporate debt maturity decisions. We find that firms with distracted shareholders are associated with lengthened debt maturity. The effect becomes stronger for firms with high information asymmetry or those with high levels of financial constraint. When distraction is high and debt maturity is low, firms hold more cash and use that cash in value-destroying acquisitions. This supports the prevalence of agency problems when institutional shareholders are distracted. The impact of distraction is persistent and affects the debt maturity decision in the future. Our findings are robust to endogeneity and other concerns.

AB - We examine whether institutional shareholders’ distraction affects corporate debt maturity decisions. We find that firms with distracted shareholders are associated with lengthened debt maturity. The effect becomes stronger for firms with high information asymmetry or those with high levels of financial constraint. When distraction is high and debt maturity is low, firms hold more cash and use that cash in value-destroying acquisitions. This supports the prevalence of agency problems when institutional shareholders are distracted. The impact of distraction is persistent and affects the debt maturity decision in the future. Our findings are robust to endogeneity and other concerns.

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DO - 10.1111/jfir.12419

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JF - Journal of Financial Research

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ER -

Distracted institutional shareholders and debt maturity

Abstract

Bibliographical note

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