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Institutional investors’ activism and credit ratings

journal contribution
posted on 2023-06-08, 22:11 authored by Javeria Farooqi, Surendranath Jory, Thanh Ngo
We study the link between institutional shareholdings and the quality of the credit ratings of the firms they hold in their investment portfolio. The study of the overall impact of institutional investor ownership yields mixed results while more consistent results are obtained when we take into account the heterogeneity of institutional investors. When we classify the institutional investors based on their degree of intervention and activism levels, we find that passive/inactive investors are associated with better-rated firms while active ones are associated with lower-rated firms. Thus, activist institutional investors believe that there is more value to be found at lowly rated firms. They are more likely to find cheap stocks among these firms that require both their financial and managerial inputs to progress. Passive investors, instead, tend to track market indices that consist of mostly highly rated firms.

History

Publication status

  • Published

File Version

  • Published version

Journal

Journal of Economics and Finance

ISSN

1055-0925

Publisher

Springer US

Issue

1

Volume

41

Page range

51-77

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2015-08-24

First Compliant Deposit (FCD) Date

2015-08-24

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