Institutional Cross‐Ownership and Asset–Liability Maturity Mismatches: Evidence From Chinese Listed Firms
WeiWei Li, Prasad Padmanabhan, Chia‐Hsing HuangABSTRACT
Research Question/Issue
This paper examines whether cross‐ownership, where institutional investors hold equity stakes in two or more firms within the same industry, affects asset–liability maturity mismatches that occur when cross‐owned firms use short‐term debt to finance long‐term assets.
Research Findings/Insights
Using a sample of Chinese listed firms for the 2007–2022 period, results suggest that firms with institutional cross‐owners increase asset–liability maturity mismatches since they use more short‐term debt, less long‐term debt, and allocate more resources to research and development (R&D) expenditures because of cross‐ownership. Increase in mismatches because of institutional cross‐ownership is more pronounced for firms with similar technological profiles, for firms facing intense product market competition, for firms experiencing severe agency conflicts, and for cross‐listed firms.
Theoretical/Academic Implications
We extend the anticompetitive perspective by showing that portfolio‐wide wealth maximization may harm individual portfolio firms through greater maturity mismatches. Moreover, we extend agency and information asymmetry theories by identifying institutional cross‐ownership as an important mechanism through which agency conflicts and information frictions translate into greater maturity mismatches. Overall, our findings shed new light on the “dark side” of institutional cross‐ownership.
Practitioner/Policy Implications
Managers of institutionally cross‐held firms should avoid excessive reliance on short‐term debt when financing long‐term investments such as R&D expenditures. We advise regulators to monitor the potential adverse financing consequences of institutional cross‐ownership, particularly for firms facing intense product market competition, greater agency conflicts, or higher information asymmetry. Investors and creditors should incorporate cross‐ownership–related maturity mismatch risk into their investment and lending decisions.