Common Institutional Ownership and Corporate Leverage Manipulation

Abstract

“Deleveraging” is a key starting point for preventing and resolving major risks, especially financial risks. This paper studies the impact of common institutional ownership on corporate deleveraging behavior from the perspective of leverage manipulation. The study shows that common institutional ownership can significantly inhibit corporate leverage manipulation and that managerial myopia and internal control quality play negative and positive moderating roles in the above relationship, and its mechanism is mainly to alleviate the degree of financing constraints, reduce the degree of information asymmetry, and then play the governance efficacy of common institutional ownership. It is further found that the governance effect of common ownership is more significant in the sample of firms after the implementation of the “deleveraging” policy, in the sample of non-state-owned firms, in the sample of firms without directors’ liability insurance, and in the sample of firms with weaker managerial competence. The economic consequence test shows that common institutional ownership improves investment efficiency and reduces risk-taking by constraining leverage manipulation. This paper explores the impact of this emerging form of ownership on corporate governance and corporate leverage manipulation from the perspective of institutional common ownership, which is of great practical value in promoting the sound development of the capital market.