Transient institutional ownership, costly external finance and corporate cash holdings

Hyun Joong Im; Heungju Park; Shams Pathan; Robert Faff

doi:10.1111/jbfa.12840

Transient institutional ownership, costly external finance and corporate cash holdings

Hyun Joong Im, Heungju Park^*, Shams Pathan, Robert Faff

^*Corresponding author for this work

Centre for Data Analytics

Research output: Contribution to journal › Article › Research › peer-review

2 Citations (Scopus)

Abstract

We investigate and robustly show that transient institutional ownership (IO) has a positive effect on the level and value of corporate cash holdings. Further, using a regression discontinuity design exploiting the Russell 1000/2000 index reconstitution as an exogenous shock to transient IO, we show that the effects of transient IO 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.

Original language	English
Pages (from-to)	1212-1249
Number of pages	38
Journal	Journal of Business Finance and Accounting
Volume	52
Issue number	2
DOIs	https://doi.org/10.1111/jbfa.12840
Publication status	Published - Apr 2025

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10.1111/jbfa.12840

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abstract = "We investigate and robustly show that transient institutional ownership (IO) has a positive effect on the level and value of corporate cash holdings. Further, using a regression discontinuity design exploiting the Russell 1000/2000 index reconstitution as an exogenous shock to transient IO, we show that the effects of transient IO 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.",

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AB - We investigate and robustly show that transient institutional ownership (IO) has a positive effect on the level and value of corporate cash holdings. Further, using a regression discontinuity design exploiting the Russell 1000/2000 index reconstitution as an exogenous shock to transient IO, we show that the effects of transient IO 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.

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Transient institutional ownership, costly external finance and corporate cash holdings

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