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Institutional dual holdings and risk-shifting: Evidence from corporate innovation

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  • Yang, Huan

Abstract

This paper analyzes the impact of shareholder-creditor conflicts on corporate risk-taking. Specifically, I examine the role played by institutional dual-holders (i.e., those simultaneously holding the same firm's debt and equity) in corporate innovation. Baseline results show that firms held by dual-holders generate fewer but more valuable patents. To alleviate endogeneity concerns, I use a difference-in-differences approach based on financial institution mergers. Further analysis suggests that decreased sensitivity of managerial compensation to firm risk might be a possible channel. Overall, I provide new evidence that shareholder-creditor conflicts indeed exist and lead to risk-shifting, and that dual ownership can partially mitigate this problem.

Suggested Citation

  • Yang, Huan, 2021. "Institutional dual holdings and risk-shifting: Evidence from corporate innovation," Journal of Corporate Finance, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921002108
    DOI: 10.1016/j.jcorpfin.2021.102088
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    More about this item

    Keywords

    Shareholder-creditor conflicts; Dual ownership; Risk-shifting; Asset substitution; Innovation;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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