TY - JOUR
T1 - Foreign institutional ownership and the speed of leverage adjustment
T2 - international evidence
AU - An, Zhe
AU - Chen, Chen
AU - Li, Donghui
AU - Yin, Chao
N1 - Funding Information:
We thank two anonymous referees for their valuable comments and Xiao Tian for providing excellent research assistance. Li would like to thank the financial support from the National Natural Science Foundation of China (Grant No. 71873058 ).
Publisher Copyright:
© 2021 Elsevier B.V.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/6
Y1 - 2021/6
N2 - Employing a large sample of 7246 firms across 38 economies from 2000 to 2013, we show a positive relation between foreign institutional ownership (FIO) and firms' speed of leverage adjustment. This positive relation is concentrated for over-leveraged firms that need to decrease financial leverage to rebalance their capital structures. We validate our findings using a 2SLS regression and a DiD estimation to exploit the exogenous variations in FIO generated by the inclusion of MSCI membership and the passage of the JGTRRA. These results suggest that foreign institutional investors play an important monitoring role in mitigating agency conflicts between shareholders and managers. Overall, this paper lends support to the dynamic trade-off theory.
AB - Employing a large sample of 7246 firms across 38 economies from 2000 to 2013, we show a positive relation between foreign institutional ownership (FIO) and firms' speed of leverage adjustment. This positive relation is concentrated for over-leveraged firms that need to decrease financial leverage to rebalance their capital structures. We validate our findings using a 2SLS regression and a DiD estimation to exploit the exogenous variations in FIO generated by the inclusion of MSCI membership and the passage of the JGTRRA. These results suggest that foreign institutional investors play an important monitoring role in mitigating agency conflicts between shareholders and managers. Overall, this paper lends support to the dynamic trade-off theory.
KW - Foreign institutional ownership
KW - Speed of leverage adjustment
UR - https://www.scopus.com/pages/publications/85105334861
U2 - 10.1016/j.jcorpfin.2021.101966
DO - 10.1016/j.jcorpfin.2021.101966
M3 - Article
AN - SCOPUS:85105334861
SN - 0929-1199
VL - 68
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101966
ER -