Foreign institutional ownership and the speed of leverage adjustment: International evidence

An, Zhe; Chen, Chen; Li, Donghui; Yin, Chao

doi:10.1016/j.jcorpfin.2021.101966

Cited by 29 publications

(13 citation statements)

References 75 publications

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“…First, it contributes to the debate on the controversial role of FIIs, where we document that FIIs play a positive role in local financial markets by encouraging firms to take risks. Specifically, we show that FIIs play an important monitoring role in mitigating risk‐related agency issues and providing insurance to managers against failures associated with taking risks, thus complementing the insights of previous studies, including An et al (2021), Bena et al (2017), Boubakri, Cosset, and Saffar (2013), Fang et al (2015), and Luong et al (2017), among many others.…”

Section: Introductionsupporting

confidence: 76%

Foreign institutional ownership and corporate risk‐taking: International evidence

Huang

2022

Corporate Governance

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Research Question/Issue This study aims to investigate the role of foreign institutional investors (FIIs) on corporate risk‐taking in an international context. We conjecture that FIIs play a role in encouraging firms to take risks and can substitute country‐level corporate governance in determining corporate risk‐taking. Research Findings/Insights Employing a large sample of 17,698 firms across 42 economies, we show that foreign institutional ownership positively influences corporate risk‐taking. This positive relation is achieved through the monitoring channel and the insurance channel. Furthermore, we show that FIIs substitute country‐level corporate governance in determining corporate risk‐taking, indicating that FIIs play a significant role in promoting risk‐taking in economies with weaker governance. In addition, debtholders view FIIs' risk‐promoting role negatively and use more restrictive covenants to protect themselves. Theoretical/Academic Implications This study provides empirical support for the role of FIIs on corporate investment decisions, thus complementing the existing literature. In addition, our paper documents that country‐level corporate governance and FIIs are substitutes in determining corporate risk‐taking, thus shedding additional light not only on the role of country‐level corporate governance but also on its controversial joint role with FIIs. Practitioner/Policy Implications FIIs from economies with stronger corporate governance are particularly effective at promoting corporate risk‐taking in economies with weaker corporate governance, providing a new channel through which foreign investments can influence economic growth in developing economies. Therefore, policymakers should carefully consider and trade off the costs and benefits of foreign investment when proposing relevant policies.

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Section: Introductionsupporting

confidence: 76%

Foreign institutional ownership and corporate risk‐taking: International evidence

Huang

2022

Corporate Governance

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“…Institutional investors play a significant role in corporate governance (Huang & Zhu, 2015 ) by monitoring and influencing managerial behavior like cash management, diversification, tax avoidance, risk-taking, organizational culture, philanthropic decisions, corporate leverage adjustment, corporate innovation, CSR, and investment efficiency (Ameer, 2010 ; An et al, 2021 ; Andreou et al, 2021 ; Cao et al, 2020 ; Cheng et al, 2021 ; Fu & Qin, 2021 ; García-Sánchez et al, 2020 ; Hartzell et al, 2014 ; Jiang et al, 2021 ; Sakawa et al, 2021 ). This role helps mitigate agency issues between principals and agents and improve the firm’s performance (Shleifer & Vishny, 1986 ).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Board diversity and financial statement comparability: evidence from China

et al. 2022

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We investigate the relationship between board diversity (relation-oriented diversity, task-oriented diversity, and overall board diversity) and financial statement comparability. We find that diverse boards are positively associated with financial statement comparability, suggesting that board diversity improves governance mechanisms by alleviating agency conflicts, leading to higher comparability than homogenous boards. We also find that institutional ownership positively affects the association between board diversity and financial statement comparability. Furthermore, the positive effect of diversity, institutional ownership, and comparability are more pronounced in non-state-owned firms and non-crisis periods. Our findings remain consistent with a battery of econometric techniques and measures of comparability. This study provides new insights regarding the role of boardroom diversity in shaping the qualitative aspect of financial reporting, i.e., financial statement comparability. Supplementary Information The online version contains supplementary material available at 10.1007/s40821-022-00214-3.

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“…In firms where the degree of attention to ownership structure is quantitatively low, management may be left to nonshareholders/professionals, which may cause a conflict of interest (agency theory) between the representative and the represented. In companies where the degree of ownership structure concentration is low, the agency costs between shareholders and managers increase the capital costs, making it difficult to change and balance the target capital structures of the firms (An et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

“…An et al (2021) examined the relationship between ownership structure and capital structure adjustment speed based on foreign corporate ownership. The study reviewed 7246 firms from 38 different countries between 2000 and 2013 and a positive relationship has found between foreign corporate ownership and adjustment speed.…”

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confidence: 99%

Capital Structure Adjustment Speed and Ownership Structure: A Research on BIST 100 Index Food Sector Firms

YIKILMAZ

2023

OPUS Toplum Araştırmaları Dergisi

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In this study, the capital structure adjustment speed of 19 food sector firms in the Borsa Istanbul (BIST) 100 index has been estimated between 2010 and 2021. The effect of ownership identity on the capital structure adjustment speed has been investigated within the scope of family and non-family firms. The seven firms have been classified as non-family firms (NFF) and twelve as family firms (FF). The capital structure adjustment speed for family and non-family firms has been composed of the classical dynamic partial adjustment model. The Generalized Moments Method (GMM) model has been used as the econometric model in estimating the models. The results obtained from the study revealed that there is no significant difference between the debt ratios of family companies and non-family firms. The adjustment speed of family firms has been determined as 68%, and the adjustment speed of non-family firms has been approximately 56%. The capital structure adjustment speed of family firms is higher than non-family firms. The results show that family firms are less exposed to financial constraints than other firms increasing their borrowing capability, thus enabling them to reach the target debt level faster. The findings suggest that ownership structure plays a vital role in capital adjustment behavior.

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Foreign institutional ownership and the speed of leverage adjustment: International evidence

Cited by 29 publications

References 75 publications

Foreign institutional ownership and corporate risk‐taking: International evidence

Foreign institutional ownership and corporate risk‐taking: International evidence

Board diversity and financial statement comparability: evidence from China

Capital Structure Adjustment Speed and Ownership Structure: A Research on BIST 100 Index Food Sector Firms

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