Common institutional ownership and excessive corporate leverage: evidence from China

This study examines the impact of common institutional ownership (CIO) on excessive leverage in Chinese listed firms. The results show that CIO significantly reduces excessive corporate leverage. Mechanism analysis indicates that CIO mitigates excessive leverage by improving equity financing and enhancing corporate governance. This effect is more pronounced in firms with more stable institutional investors and lower analyst coverage, and holds for both state-owned and non-state-owned enterprises. Furthermore, the deleveraging effect of CIO also helps reduce inefficient investment and lower debt default risk.