Institutional investor horizons, information environment, and firm financing decisions

Xin Chang; Yangyang Chen; Kangkang Fu; Endong Yang

doi:10.1016/j.jcae.2023.100397

Institutional investor horizons, information environment, and firm financing decisions

Xin Chang
, Yangyang Chen^*
, Kangkang Fu
, Endong Yang

^*Corresponding author for this work

Department of Accountancy

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

13 Citations (Scopus)

Abstract

We provide evidence that the investment horizons of institutional shareholders affect firms’ financing decisions. We find that short-term institutional ownership positively affects firms’ likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms’ financing decisions by shaping their information environment. © 2023 Elsevier Ltd

Original language	English
Article number	100397
Journal	Journal of Contemporary Accounting and Economics
Volume	20
Issue number	1
Online published	25 Dec 2023
DOIs	https://doi.org/10.1016/j.jcae.2023.100397
Publication status	Published - Apr 2024

Funding

We acknowledge financial support from the Ministry of Education (Singapore) (grant number RT01/19), the National Science Foundation of China (72072067 and 72132010), the 111 Project (B20094), the Beijing Outstanding Young Scientist Program (BJJWZYJH01201910034034), and the University of Macau Multi-Year Research Grant (MYRG2022-00146-FBA).

Research Keywords

Capital structure
Debt maturity
Information asymmetry
Institutional ownership
Investor horizons

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title = "Institutional investor horizons, information environment, and firm financing decisions",

abstract = "We provide evidence that the investment horizons of institutional shareholders affect firms{\textquoteright} financing decisions. We find that short-term institutional ownership positively affects firms{\textquoteright} likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms{\textquoteright} financing decisions by shaping their information environment. {\textcopyright} 2023 Elsevier Ltd",

keywords = "Capital structure, Debt maturity, Information asymmetry, Institutional ownership, Investor horizons",

author = "Xin Chang and Yangyang Chen and Kangkang Fu and Endong Yang",

year = "2024",

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doi = "10.1016/j.jcae.2023.100397",

language = "English",

volume = "20",

journal = "Journal of Contemporary Accounting and Economics",

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TY - JOUR

T1 - Institutional investor horizons, information environment, and firm financing decisions

AU - Chang, Xin

AU - Chen, Yangyang

AU - Fu, Kangkang

AU - Yang, Endong

PY - 2024/4

Y1 - 2024/4

N2 - We provide evidence that the investment horizons of institutional shareholders affect firms’ financing decisions. We find that short-term institutional ownership positively affects firms’ likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms’ financing decisions by shaping their information environment. © 2023 Elsevier Ltd

AB - We provide evidence that the investment horizons of institutional shareholders affect firms’ financing decisions. We find that short-term institutional ownership positively affects firms’ likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms’ financing decisions by shaping their information environment. © 2023 Elsevier Ltd

KW - Capital structure

KW - Debt maturity

KW - Information asymmetry

KW - Institutional ownership

KW - Investor horizons

UR - https://www.scopus.com/pages/publications/85181799032

UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85181799032&origin=recordpage

U2 - 10.1016/j.jcae.2023.100397

DO - 10.1016/j.jcae.2023.100397

M3 - RGC 21 - Publication in refereed journal

SN - 1815-5669

VL - 20

JO - Journal of Contemporary Accounting and Economics

JF - Journal of Contemporary Accounting and Economics

IS - 1

M1 - 100397

ER -

Institutional investor horizons, information environment, and firm financing decisions

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Research Keywords

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