Institutional investors’ site visits and corporate default risk: evidence from China

This study investigates the effect of institutional investors’ site visits on corporate default risk. Using the sample of Chinese firms listed on the Shenzhen Stock Exchange (SZSE) from 2013 to 2020 and the data from the China Stock Market & Accounting Research (CSMAR) database, we conduct a least squares regression and find that institutional investors’ site visits can significantly reduce corporate default risk. The result remains robust after a series of robustness checks, including alternative measures of default risk, instrumental variable regression, propensity score matching, and placebo tests. Mechanism tests suggest that institutional investors’ site visits decrease default risk by easing financing constraints and decreasing the volatility of profitability. Further analyses show that the effect of institutional investors’ site visits on default risk is more pronounced for firms with higher leverage, and firms operating in uncertain policy environments or competitive product markets. Our findings highlight the spillover effect of institutional investors’ site visits from a non-shareholder stakeholder perspective. And we offer implications for regulators to improve governance efficiency and information environment by market mechanisms.