Creditor Rights and Capital Structure: Evidence from International Data
45 Pages Posted: 11 Nov 2013
Date Written: November 10, 2013
For a large sample of 48 countries, we find robust evidence that strong creditor rights are associated with low long-term leverage across countries. We further find that strong creditor protection lowers long-term debt issuance, the extent to which investments are financed with long-term debt, and target leverage ratios. Finally, we find that firm and country characteristics influence the link between creditor protection and long-term leverage. Our results support the demand-side view that strong creditor protection discourages firms from making long-term cash flow commitments to service debt because managers and shareholders avoid the risk of losing control in the case of financial distress.
Keywords: Creditor rights, Investor protection, Capital structure, Bankruptcy
JEL Classification: G15, G32, G33, K22
Suggested Citation: Suggested Citation