Common institutional ownership and corporate excess leverage: Evidence from China

This paper empirically investigates the impact of common institutional ownership on a corporation’s excess leverage using ordinary least squares (OLS) regression and a fixed-effects model with panel data on corporations listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2023. The following conclusions can be drawn. (1) Common institutional ownership can significantly reduce excess leverage. This finding is supported by endogeneity tests, such as the Heckman two-stage estimation, propensity score matching method, and instrumental variable method, and robustness tests that narrow sample intervals and replace measures. (2) Mechanism analysis reveals that common institutional ownership can increase director network centrality and improve corporations’ information transparency to reduce excess leverage. (3) Heterogeneity analysis reveals that for corporations with peers with greater increases in leverage and more competitive positions in the industry and during an economic downturn, common institutional ownership has a more significant effect on the reduction in excess leverage. We broaden the field of study on common institutional ownership and corporate debt financing and offer fresh perspectives for China to rationally accomplish “structural deleveraging” under the current economic situation.