Home to both the Center for Corporate Governance and the Center for Nonprofit Governance, the Raj & Kamla Gupta Governance Institute advocates for improved governance practices for public, private, and nonprofit organizations.


A study by Paolo Volpin, PhD, Academic Director of the Gupta Governance Institute and Stratakis Chair Professor at Drexel University’s LeBow College of Business, and coauthors, shows that, at shareholder meetings, family funds that hold both corporate bonds and equity in a given company tend to vote in line with the interests of creditors when the fraction of their debt over equity holdings is high.

Institutional Debt Holder Governance

Key Insights

  • Institutional investors own more than two thirds of equity traded on the US stock market, as well as a large fraction of US corporate bonds. This joint debt-equity holding affects the voting behavior of institutional investors and, therefore, the governance of US public corporations when debt and equity’s interests are in conflict.
  • When companies are in financial distress, fund families with a long position in both corporate debt and equity of a given company are more likely to vote in line with the interests of debt holders rather than shareholders, compared with fund families with only equity positions. In contrast, there is no difference in voting behavior between the two types of fund families when companies are financially sound.
  • The voting behavior of fund families with joint debt-equity holdings influences corporate decisions: A higher fraction of debt over equity holdings in a given company is associated with an increase in capital expenditures and seasoned equity offerings, but a decrease in dividend payments, share repurchases and non-core acquisitions. This suggests that higher debt-equity holdings lead to companies acting more in the interests of creditors than of shareholders.
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