Access to Collateral and Corporate Debt Structure: Evidence from a Natural Experiment

71 Pages Posted: 28 Feb 2007 Last revised: 12 Jul 2012

Vikrant Vig

London Business School

Date Written: March 23, 2012

Abstract

We investigate how firms respond to strengthening of creditor rights by examining their financial decisions following a securitization reform in India. We find that the reform led to a reduction in secured debt, total debt, debt maturity, asset growth and an increase in liquidity hoarding by firms. Moreover, the effects are more pronounced for firms that have a higher proportion of tangible assets, since these firms are more affected by the secured transactions law. These results suggest that strengthening of creditor rights introduces a liquidation bias and documents how firms alter their debt structures to contract around it.

Keywords: Capital Structure, Bankuptcy, Law and Finance, Debt structure, Financial development, Creditor rights

JEL Classification: F34, F37, G21, G28, G33, K39

Suggested Citation

Vig, Vikrant, Access to Collateral and Corporate Debt Structure: Evidence from a Natural Experiment (March 23, 2012). EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=965992 or http://dx.doi.org/10.2139/ssrn.965992

Vikrant Vig (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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