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Transient institutional ownership, costly external finance and corporate cash holdings

Lookup NU author(s): Dr Shams PathanORCiD

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Abstract

We investigate and robustly show that transient institutional ownership has a positive effect on the level and value of corporate cash holdings. Further, using a regression discontinuity de- sign exploiting the Russell 1000/2000 index reconstitution as an exogenous shock to transient institutional ownership, we show that the effects of transient institutional ownership on cash holdings are causal. Additionally, our analysis shows that transient institutions exacerbate debtholder–shareholder conflicts, thereby increasing the cost of debt. Overall, our results suggest that transient institutions make cash holdings more valuable because financing by debt becomes more costly.

Publication metadata

Author(s): Im HJ, Park H, Pathan S, Faff R

Publication type: Article

Publication status: Published

Journal: Journal of Business Finance and Accounting

Year: 2024

Pages: epub ahead of print

Online publication date: 20/11/2024

Acceptance date: 20/09/2024

ISSN (print): 0306-686X

ISSN (electronic): 1468-5957

Publisher: Wiley-Blackwell Publishing Ltd.

URL: https://doi.org/10.1111/jbfa.12840

DOI: 10.1111/jbfa.12840

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