Does Institutional Ownership Signal Risks?

Syndicated loans are loans given to a business by a group of banks based on the same contracts.Among the group,lead arrangers originate the loan and perform due diligence and monitoring,while the participant banks fund parts of the loans.Syndicated loans have become one of the most important financing tools in the capital market.Since the financia crisis,banks are now paying more attention to non-financial information.As relative sophisticated investors,do institution investors signal firm value to debtholder by their shareholding and thus affect debt contracting?Using a sample of loans issued by U.S.public firms in the syndicated loan market over the period 2001-2015,this paper investigates whether and how borrowing firms'institutional ownership affect the contracting features of syndicated loans and finds strong and robust evidence that the higher institutional ownerships are related to more dispersed loan structure and looser loan terms.Specifically,I find that institutional ownerships are(1)positively related to the number of participants and negatively related to the loan proportion retained by lead arrangers;(2)negatively related to the bank loan price and positively related to loan maturity;(3)heterogeneous institutions have significance difference in their influence,and relations mentioned in(1)and(2)are mainly driven by quasi-indexers;(4)the informativeness of institutional ownership is affected by ownership structure,and thus relations mentioned in(1)and(2)are mitigated by institutional ownership concentration;(5)the informativeness of institutional ownership increases with agency concerns.Specially,relations mentioned in(1)and(2)are enhanced by borrowers' ownership dispersion.To date,most of the accounting research focuses on analyzing the role of institutional investors in equity markets,while the non-equity-market(especially private market)demand is almost always ignored.I extend this line of research by showing that institutional investors do sinal firm value to debeholders in private debt markets.Moreover,institution heterogeneity lead to variation in institutions' influence on syndicated loans,indicating potential channels through which institutions affect debt contracting.Taken as a whole,informativeness of institutional ownership in debt market is related to agent problems,which provides implications for stakeholders.