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Foreign Institutional Ownership and the Speed of Leverage Adjustment: International Evidence

An, Z.; Chen, C.; Lib, D.; Yin, C.

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Authors

Z. An

C. Chen

D. Lib

C. Yin



Abstract

Employing a large sample of 7246 firms across 38 economies from 2000 to 2013, we show a positive relation between foreign institutional ownership (FIO) and firms’ speed of leverage adjustment. This positive relation is concentrated for over-leveraged firms that need to decrease financial leverage to rebalance their capital structures. We validate our findings using a 2SLS regression and a DiD estimation to exploit the exogenous variations in FIO generated by the inclusion of MSCI membership and the passage of the JGTRRA. These results suggest that foreign institutional investors play an important monitoring role in mitigating agency conflicts between shareholders and managers. Overall, this paper lends support to the dynamic trade-off theory.

Citation

An, Z., Chen, C., Lib, D., & Yin, C. (2021). Foreign Institutional Ownership and the Speed of Leverage Adjustment: International Evidence. Journal of Corporate Finance, 68, Article 101966. https://doi.org/10.1016/j.jcorpfin.2021.101966

Journal Article Type Article
Acceptance Date Apr 16, 2021
Online Publication Date Apr 23, 2021
Publication Date 2021-06
Deposit Date Apr 19, 2021
Publicly Available Date Apr 23, 2023
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 68
Article Number 101966
DOI https://doi.org/10.1016/j.jcorpfin.2021.101966
Public URL https://durham-repository.worktribe.com/output/1249573

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