Institutional investors distraction and debt choice

Joseph Maxwell ASAMOAH, Cephas Simon Peter DAK-ADZAKLO*, Emmanuel OFOSU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

Purpose: This study aims to investigate the impact of institutional investors distraction on firms' choice between bank debt and public debt.

Design/methodology/approach: The study employs the measure of institutional investors distraction from Kempf et al. (2017), which captures exogenous attention-grabbing events in other aspects of institutional investors' portfolios holdings to examine this research question. The study uses a sample of 16,047 firm-year observations comprising 2,521 US firms for the period of 2000–2016.

Findings: The result shows a significant positive association between institutional shareholder distraction and firms' bank ratio. Cross-sectional tests show that the positive association between institutional shareholders distraction and firms' bank ratio is stronger for firms in poorer information environments and for firms facing greater competitive threats from rivals.

Originality/value: This study underscores the important governance role played by institutional shareholders and the consequence when such a monitoring role is impaired. In particular, firms with distracted shareholders rely on expensive bank monitoring and scrutiny to supply their additional monitoring capacity.
Original languageEnglish
Pages (from-to)706-719
Number of pages14
JournalManagerial Finance
Volume48
Issue number5
DOIs
Publication statusPublished - 18 Feb 2022
Externally publishedYes

Bibliographical note

Funding Information:
The authors acknowledge an anonymous reviewer for helpful comments. Funding : The authors have no funding source to disclose. Availability of data and material : All the data used in this study are available from the public sources or websites indicated in the paper. Code availability : The code for obtaining the results in this paper are readily available. Conflicts of interest/competing interests : The authors have no relevant financial or non-financial interests to disclose.

Publisher Copyright:
© 2022, Emerald Publishing Limited.

Keywords

  • Bank debt
  • Public debt
  • Institutional investors distraction
  • Corporate governance

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