Creditor Rights and Capital Structure: Evidence from International Data

45 Pages Posted: 11 Nov 2013

See all articles by Seong-Soon Cho

Seong-Soon Cho

Korea Exchange (KRX)

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Jungwon Suh

Sungkyunkwan University (SKKU)

Date Written: November 10, 2013

Abstract

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

Cho, Seong-Soon and El Ghoul, Sadok and Guedhami, Omrane and Suh, Jungwon, Creditor Rights and Capital Structure: Evidence from International Data (November 10, 2013). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2352626

Seong-Soon Cho

Korea Exchange (KRX) ( email )

Busan
Korea, Republic of (South Korea)

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Jungwon Suh

Sungkyunkwan University (SKKU) ( email )

206 International Hall
Seoul 110-745, 110-745
Korea, Republic of (South Korea)

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