Research Discussion Papers, Bank of Finland
No 23/2013:
What types of bondholders impede corporate innovative activities?
Iftekhar Hasan ()
, Jonathan O’Brien ()
and Pengfei Ye ()
Abstract: This study investigates whether institutional bond
blockholders (i.e., bond funds that hold more than 5% of a firm’s
outstanding bonds) impede firm innovative activities, and if they do,
through which channels. We find that long-term bond blockholders do not
discourage firms from conducting innovative activities. Short-term bond
blockholders, however, significantly reduce both firm investments in R&D
and the innovative quality of these investments. Furthermore, their
negative impact is stronger than the negative impact of short-term
stockholders. Our results cannot be fully explained by short-term
bondholders’ a priori investment preferences and are robust to possible
endogeneity concerns. Overall, they suggest that the option of the ‘Wall
Street walk’ allows bondholders to exert considerable influence on firms’
risk-taking decisions.
Keywords: bondholder; innovation; investment horizon; Wall Street walk; (follow links to similar papers)
JEL-Codes: G23; G31; (follow links to similar papers)
51 pages, October 3, 2013
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