Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

Petya Platikanova, Kazbi Soonawalla

Research output: Indexed journal article Articlepeer-review

5 Citations (Scopus)

Abstract

In this study, we suggest that the level of information opaqueness determines the propensity of publicly listed firms to have debt financing from only a few debt types (i.e., debt specialisation). Using accruals quality as a proxy for information opaqueness, we find that the degree of debt specialisation is lower for firms with high-quality accruals. This result is consistent with the notion that information collection and monitoring costs are higher for firms that have higher informational opacity, explaining the tendency towards debt specialisation. We further argue that creditors need not monitor borrowers so closely when they are monitored by institutional owners. The empirical findings support this argument and show that firms with more stable institutional ownership are likely to have less specialised debt types. The empirical evidence is also consistent with the expectation that stable institutional ownership is likely to reduce the demand for monitoring over accruals management. Using S&P 500 membership as an exogenous event driving institutional ownership changes, we further document that debt specialisation is decreasing in accruals quality when institutional investors are expected to have an influence.

Original languageEnglish
Pages (from-to)1867-1904
Number of pages38
JournalAccounting and Finance
Volume60
Issue number2
DOIs
Publication statusPublished - 1 Jun 2020
Externally publishedYes

Keywords

  • Accruals quality
  • Debt structure
  • Information opacity
  • Institutional investors

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