Insolvency Codes and Investment: Theory and Evidence from Panel Data

33 Pages Posted: 12 Nov 2003

See all articles by Julio Pindado

Julio Pindado

University of Salamanca - Administration and Business Economics

Luis Fernandes Rodrigues

Escola Superior de Tecnologia de Viseu

Date Written: September 15, 2003

Abstract

This paper studies which characteristics of the financial insolvency codes give rise to two well-known investment problems (underinvestment and overinvestment). The empirical evidence is obtained by estimating the q investment model which incorporates cash flow. Our results show a negative effect of ex-ante costs on investment. Furthermore, the sensitivity of investment to cash flow depends on the characteristics embodied in each code. Although those giving rise to underinvestment have a negative effect, the magnitude of this effect is greater for the characteristics referring to reorganization without creditors' consent, and the lack of control by creditors.

Keywords: insolvency codes, investment, insolvency costs

JEL Classification: G31, G33, G38

Suggested Citation

Pindado, Julio and Fernandes Rodrigues, Luis, Insolvency Codes and Investment: Theory and Evidence from Panel Data (September 15, 2003). Available at SSRN: https://ssrn.com/abstract=454940 or http://dx.doi.org/10.2139/ssrn.454940

Julio Pindado (Contact Author)

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Luis Fernandes Rodrigues

Escola Superior de Tecnologia de Viseu ( email )

Viseu, 3504-510
Portugal

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