What is the role of institutional investors in corporate capital structure decisions? A survey analysis

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.

Original languageEnglish
Pages (from-to)270-286
Number of pages17
JournalJournal of Corporate Finance
Volume58
DOIs
Publication statusPublished - Oct 2019

Keywords

  • Capital structure
  • Capital supply
  • Financial constraints
  • Institutional investors
  • Security design
  • Security issuance

Cite this

@article{97cb2204146b47b193fefb3877ddf375,
title = "What is the role of institutional investors in corporate capital structure decisions? A survey analysis",
abstract = "We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82{\%} of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.",
keywords = "Capital structure, Capital supply, Financial constraints, Institutional investors, Security design, Security issuance",
author = "Stephen Brown and Marie Dutordoir and Chris Veld and Yulia Veld-Merkoulova",
year = "2019",
month = "10",
doi = "10.1016/j.jcorpfin.2019.05.001",
language = "English",
volume = "58",
pages = "270--286",
journal = "Journal of Corporate Finance",
issn = "0929-1199",
publisher = "Elsevier",

}

What is the role of institutional investors in corporate capital structure decisions? A survey analysis. / Brown, Stephen; Dutordoir, Marie; Veld, Chris; Veld-Merkoulova, Yulia.

In: Journal of Corporate Finance, Vol. 58, 10.2019, p. 270-286.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - What is the role of institutional investors in corporate capital structure decisions? A survey analysis

AU - Brown, Stephen

AU - Dutordoir, Marie

AU - Veld, Chris

AU - Veld-Merkoulova, Yulia

PY - 2019/10

Y1 - 2019/10

N2 - We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.

AB - We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.

KW - Capital structure

KW - Capital supply

KW - Financial constraints

KW - Institutional investors

KW - Security design

KW - Security issuance

UR - http://www.scopus.com/inward/record.url?scp=85066096098&partnerID=8YFLogxK

U2 - 10.1016/j.jcorpfin.2019.05.001

DO - 10.1016/j.jcorpfin.2019.05.001

M3 - Article

VL - 58

SP - 270

EP - 286

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

ER -