This paper examines the link between ownership concentration and corporate bond volatility. We show that more concentrated mutual fund ownership is associated with higher volatility of corporate bonds. This relation is stronger among more illiquid bonds, during periods of heightened bond market illiquidity, and among bonds held by corporate bond funds that invest in more illiquid bonds and experience higher or more correlated liquidity shocks. Using a sample of mutual fund mergers, we further show that increases in bond volatility are unlikely to be driven entirely by the endogenous ownership structure of corporate bonds. Our findings suggest that the concentrated ownership by corporate bond mutual funds provides another channel, apart from illiquidity, to help explain the excess volatility in corporate bonds.

We study the dynamic relation between aggregate mutual fund flow and market-wide volatility. Using daily flow data and a VAR approach, we find that market volatility is negatively related to concurrent and lagged flow. A structural VAR impulse response analysis suggests that shock in flow has a negative impact on market volatility: An inflow (outflow) shock predicts a decline (an increase) in volatility. From the perspective of volatility–flow relation, we find evidence of volatility timing for recent period of 1998–2003. Finally, we document a differential impact of daily inflow versus outflow on intraday volatility. The relation between intraday volatility and inflow (outflow) becomes weaker (stronger) from morning to afternoon.

This paper examines the relation between portfolio concentration and investment performance in corporate bond mutual funds. Using detailed holdings data, we construct portfolio concentration measures at the firm, industry, and credit rating levels. We find that portfolio concentration is significantly positively related to expected abnormal returns of corporate bond funds, and this relation is mainly driven by investment-grade funds. High-yield funds, however, do not exhibit such a relation, possibly due to the erosion of the value of portfolio concentration by liquidity costs. In support of this conjecture, we document that the concentration-performance relation is less pronounced among funds with higher sensitivities to market-wide illiquidity innovations and during periods of bond market illiquidity shocks and fund-level net money outflows. Finally, we show that more concentrated funds demonstrate stronger performance persistence, and investors appear to consider portfolio concentration in making investment decisions.

We investigate the effect of agency conflicts between shareholders and debtholders on aggressive tax avoidance using a unique setting of dual holders who simultaneously hold equity and debt of the same firms. We find robust evidence that firms with dual holders exhibit more aggressive tax behavior even after controlling for endogeneity, suggesting that shareholder-debtholder conflicts induce firms to underinvest in tax aggressiveness. In addition, there exists a concave relation between tax aggressiveness and dual owners’ debt exposure relative to their overall debt and equity exposures to the investee firms. Further tests show that the effect of dual ownership on tax aggressiveness is more pronounced among firms with higher risk-shifting tendencies and higher managerial risk-taking incentives. Finally, our bond borrowing cost test shows that dual holdings mitigate the increased cost of borrowing due to aggressive tax avoidance.