Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices

40 Pages Posted: 7 Feb 2000

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

Abstract

This paper examines how firm characteristics, legal rules and financial development affect corporate finance decisions. In contrast to the existing literature, I use data on unlisted companies to show that institutions play an important role in determining the extent of agency problems. In particular, I find that in countries with good creditor protection, it is easier for firms investing in intangible assets to obtain loans. The protection of creditor rights is also important for ensuring access to long-term debt for firms operating in sectors with highly volatile returns. Ceteris paribus, firms are more leveraged in countries where the stock market is less developed. Unlisted firms appear more indebted than listed companies even after controlling for firm characteristics such as profitability, size and the ability to provide collateral. Finally, institutions that favor creditor rights and ensure stricter enforcement are associated with higher leverage, but also with greater availability of long-term debt.

Keywords: leverage, debt maturity, unlisted companies, agency problems, enforcement, creditor rights

JEL Classification: G32, L14, O16

Suggested Citation

Giannetti, Mariassunta, Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices (May 2002). Tuck-JQFA Contemporary Corporate Governance Issues II Conference; EFA 0042. Available at SSRN: https://ssrn.com/abstract=203768 or http://dx.doi.org/10.2139/ssrn.203768

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
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+46 8 736 9607 (Phone)
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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