Passive Debt Ownership and Corporate Financial Policy

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ID: 328957
2026
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Abstract
Abstract The rise in passively managed corporate debt funds has resulted in an increasingly inelastic demand for corporate debt. In this study, we quantify how passive debt ownership affects firms’ financial policy. Using fund-specific flows to capture firm-level changes in passive debt ownership that are exogenous to firm fundamentals, we find that firms respond to higher levels of passive debt ownership by increasing leverage. The borrower-friendly terms provided by passive debtholders could also theoretically lead to several potential changes in investment or payout policy. We show that passive debt holding does not affect investment policy. Instead, higher passive ownership predicts increased dividend payouts—even for firms far from index thresholds—exacerbating shareholder-debtholder conflicts. Passive debtholders enable these effects by reducing aggregate ex-ante and ex-post monitoring. The presence of a bank monitor moderates the relationship between passive debt ownership and increased payout, reinforcing the importance of this monitoring channel.
Reference Key
openalex_W7213425315 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Brian Gibbons, Golnaz Bahrami
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Journal international review of finance
Year 2026
DOI
10.1093/rof/rfag043
URL
https://doi.org/10.1093/rof/rfag043
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