Common institutional ownership and the cost of debt in Taiwan

We examine the impact of common institutional ownership (CIO) of firms in the same industry on their cost of bank loans using data on Taiwan-listed firms from 1996 to 2021. The evidence shows that CIO is negatively related to loan spreads. When decomposing our sample according to a firm's life cycle and family ownership, the negative relation is significant only in the mature stage of a firm's life cycle and for family-owned firms. The subsample evidence suggests that CIO enhances effective monitoring to increase firm value, lowering loan spreads. We also find that the negative relation becomes statistically insignificant during the financial crisis period because that CIO tends to reduce investments in the same industry, thus weakening its effect during the global financial crisis.

Automated summary

This study examines the impact of common institutional ownership (CIO) on the cost of bank loans for firms in the same industry. The findings show a negative relationship between CIO and loan spreads, particularly for firms in the mature stage of their life cycle and family-owned firms. The study also finds that the negative relationship becomes statistically insignificant during the financial crisis period.