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Dedicated Investors and Debt Financing

Liao, Wei-Yi

Abstract Details

2008, Doctor of Philosophy, Ohio State University, Accounting and Management Information Systems.
This paper investigates how dedicated investors, who have concentrated investments and long investment horizons, affect agency costs of debt and firms’ debt financing decisions. I propose a management-shareholder alignment hypothesis that argues that dedicated investors concern debtholders, while mitigating management entrenchment. Consistent with this hypothesis, I find that interest rates in both bank loans and corporate bonds increase with dedicated ownership. I also find that firms with greater dedicated ownership use banks’ monitoring mechanisms to resolve the agency problems of debt caused by dedicated investors. Firms with greater dedicated ownership are more likely to have bank loans that include financial covenants and that include provisions restricting capital expenditures. As a result, the association between interest spreads and dedicated ownership is attenuated for firms that use bank debt. Finally, I find that firms with more dedicated ownership tend to choose bank loans over corporate bonds when they decide to use debt financing. This result suggests that monitoring by dedicated investors and monitoring by banks serve as complements in reducing total agency costs of capital.
Anne Beatty, PhD (Committee Chair)
J. Richard Dietrich, PhD (Committee Member)
Doug Schroeder, PhD (Committee Member)
Jennifer Altamuro, PhD (Committee Member)
63 p.

Recommended Citations

Citations

  • Liao, W.-Y. (2008). Dedicated Investors and Debt Financing [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1216144574

    APA Style (7th edition)

  • Liao, Wei-Yi. Dedicated Investors and Debt Financing. 2008. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1216144574.

    MLA Style (8th edition)

  • Liao, Wei-Yi. "Dedicated Investors and Debt Financing." Doctoral dissertation, Ohio State University, 2008. http://rave.ohiolink.edu/etdc/view?acc_num=osu1216144574

    Chicago Manual of Style (17th edition)