Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws

59 Pages Posted: 16 Mar 2020

See all articles by Daniel Tut

Daniel Tut

Ryerson University- Ted Rogers School of Management

Date Written: October 24, 2019

Abstract

This paper examines the effects of improvement in creditors' rights protection on firms' financing choices and securities issuance. To address these issues, I exploit exogenous variation in creditors' rights protection induced by the staggered adoption of anti-recharacterization laws by some U.S. states. The laws enhance the ability of creditors to repossess collateral during bankruptcy. Using a difference-in-difference methodology to estimate the causal impacts, I find that: the laws are positively related to debt capacity and debt maturity. Firms increase market leverage and substitute away from costly short-term debt financing into long-term debt financing the laws are positively related to debt issuance the laws are negatively related to equity issuance. My analysis further demonstrates that proactive securities issuers are significantly more responsive to the adoption of anti-recharacterization laws than passive securities issuers.

Keywords: Creditors' Rights, Leverage, Debt Issues, Equity Issues, Pledgeable Assets, Anti-recharacterization

JEL Classification: G30, G31, G32, G33

Suggested Citation

Tut, Daniel, Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws (October 24, 2019). Available at SSRN: https://ssrn.com/abstract=3541924 or http://dx.doi.org/10.2139/ssrn.3541924

Daniel Tut (Contact Author)

Ryerson University- Ted Rogers School of Management ( email )

55 Dundas St. W
Toronto, Ontario M5G 2C3
Canada

HOME PAGE: http://sites.google.com/view/danieltut/home

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