Institutional investment horizons,corporate governance,and credit ratings: International evidence |
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| Institution: | 1. Sobey School of Business, Saint Mary''s University, 923 Robie Street, Halifax, Nova Scotia B3H 3C3, Canada;2. Faculty of Business, University of Hamburg, Moorweidenstrasse 18, 20148 Hamburg, Germany;3. Campus Saint-Jean, University of Alberta, 8406 Rue Marie-Anne-Gaboury (91 St NW), Edmonton, Alberta T6C 4G9, Canada;4. Moore School of Business, University of South Carolina, 1014 Greene Street, Columbia, SC 29208, USA;1. Accounting and Finance, Adelaide Business School, The University of Adelaide, Level 12, 10 Pulteney Street, Adelaide, SA 5005, Australia;2. Banking and Finance, UNSW Business School, UNSW Sydney, NSW 2052, Australia;1. University of Hamburg, 20148 Hamburg, Germany;2. University of Alberta, Edmonton, AB T6C 4G9, Canada;3. University of South Carolina, Columbia, SC 29208, USA |
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| Abstract: | Using a comprehensive set of firms from 57 countries over the 2000–2016 period, we examine the relation between institutional investor horizons and firm-level credit ratings. Controlling for firm- and country-specific factors, as well as for firm fixed effects, we find that larger long-term (short-term) institutional ownership is associated with higher (lower) credit ratings. This finding is robust to sample composition, alternative estimation methods, and endogeneity concerns. Long-term institutional ownership affects ratings more during times of higher expropriation risk, for firms with weaker internal corporate governance, and for those in countries with lower-quality institutional environments. Additional analysis shows that long-term investors facilitate access to debt markets for firms facing severe agency problems. These findings suggest that, unlike their short-term counterparts, long-term investors improve a firm's credit risk profile through effective monitoring. |
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