This paper provides a comprehensive analysis of a new and increasingly important phenomenon:
the simultaneous holding of both equity and debt claims of the same company by nonbank
institutional investors (“dual-holders”). The presence of dual-holders offers a unique opportunity
to assess the existence and magnitude of shareholder-creditor conflicts. We find that syndicated
loans with dual-holder participation have loan yield spreads that are 13 to 23 basis points lower
than those without, and the difference is even larger after controlling for the selection effect.
Further investigation of dual-holders’ investment horizons and changes in borrowers’ credit
quality lends support to the hypothesis that better incentive alignment between shareholders and
creditors is responsible for the lower loan yield spreads.
Joint paper with Wei Jiang (Columbia University) and Pei Shao (University of Northern British Columbia), November, 2008