How Do Stronger Creditor Rights Impact Corporate Acquisition Activity and Quality?

43 Pages Posted: 3 Apr 2021

See all articles by Megan Rainville

Megan Rainville

Missouri State University

Emre Unlu

University of Nebraska at Lincoln

J. (Julie) Wu

University of Nebraska - Lincoln

Date Written: March 25, 2021

Abstract

We exploit a quasi-natural experiment (the adoption of state anti-recharacterization (AR) laws) to study the effect of strengthened creditor rights on corporate mergers and acquisitions (M&A). We find that, following the passage of AR laws, firms significantly reduce M&A activities. This effect is stronger for firms with higher bankruptcy risk. Conditional on making an acquisition, M&A announcement returns to both shareholders and bondholders are larger for acquirers with high bankruptcy risk, indicating no evidence of wealth transfers. Our evidence suggests that ex-ante strengthened creditor rights prompt firms to conduct more value-enhancing deals.

Keywords: creditor rights, mergers and acquisitions, anti-recharacterization laws, bankruptcy, corporate investments, wealth transfer

JEL Classification: G21, G33, G34, K22

Suggested Citation

Rainville, Megan and Unlu, Emre and Wu, J. (Julie), How Do Stronger Creditor Rights Impact Corporate Acquisition Activity and Quality? (March 25, 2021). Available at SSRN: https://ssrn.com/abstract=3811533 or http://dx.doi.org/10.2139/ssrn.3811533

Megan Rainville

Missouri State University ( email )

901 South National Avenue
Springfield, MO 65897
United States

Emre Unlu

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

J. (Julie) Wu (Contact Author)

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
58
Abstract Views
358
rank
457,348
PlumX Metrics