Institutional investment horizon,the information environment,and firm credit risk |
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Institution: | 1. ETH Zurich, KOF and Department of Management, Technology and Economics, Weinbergstr. 35, 8092 Zurich, Switzerland;2. CESifo, Munich, Germany |
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Abstract: | We provide evidence that the impact of the investment horizon of institutional investors on the credit risk of U.S. industrial firms is both statistically and economically significant. Ceteris paribus, a one percent point increase in the ownership by short-term (long-term) institutions leads to a 0.188 (.046) percentage point decrease (increase) of a firm’s credit spread during 2001–2011. However, during the financial crisis period of 2007/08, long-term institutional investors tend to reduce a firm’s credit risk, especially when a firm’s risk profile is high. Hence, long-term institutions play an important role in enhancing financial stability during the crisis period by mitigating risk. |
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Keywords: | Credit default swaps Institutional investors Financial < Gs4> Crisis |
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