Shi Ying, Yang Liyan, Niu Jiayue
Studies of International Finance. 2025, 0(10): 95-107.
As a core channel of external financing, debt financing plays a critical role in the long-term operation of enterprises. However, due to information asymmetry and principal-agent problems, creditors often cannot fully grasp the true condition of corporate management, making it difficult to accurately assess enterprises' risk-bearing capacity, which leads to higher debt financing costs. In recent years, institutional investors have developed rapidly, and their coordinated actions and collective governance participation have profoundly influenced corporate operations, thereby affecting corporate debt financing costs. Against this background, this research explores whether cooperation among institutional investors can substantially impact the cost of corporate debt by altering creditors' risk perceptions. Clarifying the issue not only extends the understanding of the relationship between institutional investor clique and debt contract design, but also provides a novel governance perspective for addressing the challenges of corporate debt financing.
The research analyzes the impact of institutional investor cliques on the cost of corporate debt from both theoretical and empirical perspectives. Theoretically, based on information asymmetry theory, agency theory, and shareholder activism, the paper explains the formation of institutional investor cliques and reveals the mechanisms through which they affect the cost of corporate debt. Empirically, using a sample of A-share listed firms from 2007 to 2022, institutional investor cliques are identified through the Louvain and Bron-Kerbosch algorithms, and their relationship with the cost of debt is examined through OLS regressions, robustness tests, mechanism analyses, and heterogeneity tests.
The main findings are as follows. Firstly, institutional investor cliques significantly reduce the cost of corporate debt. This effect remains robust after employing instrumental variable estimation, the Heckman two-stage model, propensity score matching（PSM）, and alternative sample periods and variable measures. Secondly, mechanism analysis indicates that disclosure quality and agency costs constitute the two core channels through which institutional investor clique affects the cost of debt. Thirdly, heterogeneity analysis shows that the effect of institutional investor cliques varies with firms' ownership type, industry affiliation, stock liquidity, and external audit quality. The impact is more pronounced in state-owned enterprises, non-high-tech firms, and firms with lower stock liquidity or weaker external audit quality.
Based on the findings, several policy implications emerge. Firstly, governments and regulatory authorities should enhance both the willingness and capacity of institutional investors to participate in corporate governance. This can be achieved by refining legal and tax incentive policies, fostering communication and cooperation among institutions, and guiding institutional investors towards a long-term value orientation. Secondly, firms should recognize the role of institutional investor cliques in alleviating debt burdens. In particular, state-owned enterprises, non-high-tech firms, and firms with lower stock liquidity or weaker audit quality should take the lead in involving institutional investors in governance. Thirdly, creditors are advised to incorporate signals from institutional investor cliques into credit assessments, taking into account institutional reputation, corporate financial conditions, and the intended use of debt, in order to accurately evaluate repayment capacity and reduce default risk.
