When Shareholders Are Creditors: Effects of the Simultaneous Holding of Equity and Debt by Institutional Investors

摘要

This paper provides a comprehensive analysis of a new and increasingly important phenomenon: the simultaneous holding of both equity and debt claims of the same company by nonbank institutional investors (“dual-holders”). The presence of dual-holders offers a unique opportunity to assess the existence and magnitude of shareholder-creditor conflicts. We find that syndicated loans with dual-holder participation have loan yield spreads that are 13 to 23 basis points lower than those without, and the difference is even larger after controlling for the selection effect. Further investigation of dual-holders’ investment horizon and changes in borrowers’ credit quality lends support to the hypothesis that better incentive alignment between shareholders and creditors is responsible for the lower loan yield spreads.