Vintage Capital and Creditor Protection
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage and newer technology as well as firms with larger aircraft fleets. Moreover, we find that more profitable airlines, airlines with lower leverage ratios, and airlines with less debt overhang are less sensitive to prevailing creditor rights in their country. We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies and foster productivity.
Number of Pages in PDF File: 42
Keywords: Vintage Capital, Creditor Rights, Finance and Growth, Airlines
JEL Classification: G20, G31, G33, L11
Date posted: March 26, 2008 ; Last revised: October 22, 2008