Abstract:
Institutional investors constitute a heterogeneous group, and both theoretical and practical perspectives diverge on whether they provide effective monitoring and optimize governance, or harbor conflicts of interest and exacerbate myopic behavior. Given that institutional investors represent a crucial external governance force with substantial impact on corporate debt default risk, the latter serves as an excellent testbed for examining institutional governance effects. Based on data from A-share listed companies in Shanghai and Shenzhen, this study finds that institutional investor ownership significantly reduces corporate debt default risk. This conclusion remains robust after employing treatment effect models and instrumental variable approaches to control for self-selection bias and reverse causality issues. The mechanisms, ranked by importance, are as follows: (1) promoting improvement in information disclosure quality, reducing creditors' monitoring costs and risk assessment uncertainty, thereby diminishing the risk premium demanded by creditors; (2) transmitting positive signals to the market through a "certification effect", increasing accessible funding scale and alleviating financing constraints; and (3) curbing controlling shareholder tunneling, reducing related-party transactions and fund occupation, thereby consolidating debt repayment capacity. Heterogeneity analysis indicates that the risk-reducing effect of institutional investors is stronger for firms located in regions with higher financial development levels, belonging to industries with higher default risk, having greater analyst coverage, possessing better board independence, facing higher cash flow risk, and being non-state-owned enterprises. Type-specific analysis reveals that pressure-resistant institutions such as social security funds, securities investment funds, and QFIIs, characterized by strong independence and emphasis on long-term firm value, tend to "vote with their hands" and actively participate in corporate governance. Long-term institutions with extended holding periods and high exit costs have incentives to conduct in-depth research and continuous monitoring, thereby constraining managerial over-leverage and controlling shareholder tunneling. These two institutional types demonstrate more pronounced governance effects on corporate debt default risk compared to pressure-sensitive and short-term institutions, respectively. This study provides empirical evidence for understanding the complexity of institutional investors' governance roles and offers reference value for improving institutional investor regulation and optimizing corporate governance ecosystems.
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