Systematic Risk, Creditor Protection and Leverage – A Cross-Country Analysis

50 Pages Posted: 13 Jul 2021

See all articles by Marcel Heinze

Marcel Heinze

Ruhr University of Bochum - Department of Finance and Banking

Tobias Hertel

Ruhr University of Bochum - Department of Finance and Banking

Marc Lange

Ruhr University of Bochum - Department of Finance and Banking

Date Written: November 11, 2020

Abstract

The influence of systematic risk exposure on corporate financing decisions is receiving increasing attention in the empirical capital structure research. While most recent studies of the US-market show, that systematic risk (measured with asset beta) affects corporate capital structure decisions, little is known about cross-country differences regarding this relationship. In this paper we use institutional factors that represent the protection of creditors to explore the interaction effects between country-specific factors and asset beta on financing decisions. Our findings indicate, that (i) on average, firms with higher asset beta use less debt, (ii) the protection of creditor rights mitigate the negative impact of asset beta on leverage, (iii) the negative effect of asset beta on leverage is more pronounced for firms with higher levels of leverage and (iv) that especially in countries with weak protection of creditor rights, firms with high asset beta choose less leverage in economic downturns.

Keywords: Systematic Risk, Corporate Leverage, Capital Structure, Creditor Protection, Method of Mo-ments-Quantile Regression, Economic Downturns

JEL Classification: G15, G18, G32

Suggested Citation

Heinze, Marcel and Hertel, Tobias and Lange, Marc, Systematic Risk, Creditor Protection and Leverage – A Cross-Country Analysis (November 11, 2020). Available at SSRN: https://ssrn.com/abstract=3884559 or http://dx.doi.org/10.2139/ssrn.3884559

Marcel Heinze (Contact Author)

Ruhr University of Bochum - Department of Finance and Banking ( email )

Universitätsstraße 150
44780 Bochum, 44801
Germany

Tobias Hertel

Ruhr University of Bochum - Department of Finance and Banking ( email )

Germany

Marc Lange

Ruhr University of Bochum - Department of Finance and Banking ( email )

Germany

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