Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
Rex Wang Renjie, Patrick Verwijmeren, and Shuo Xia
♦ Mutual fund families increasingly hold bonds and stocks from the same firm. We present evidence that dual ownership allows firms to increase valuable investments and refinance by issuing bonds with lower yields and fewer restrictive covenants, especially when firms face financial distress. Dual holders also prevent overinvestment by firms with entrenched managers. Overall, our results suggest that mutual fund families internalize the agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.
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