Creditor rights and capital structure: Evidence from international data |
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| Institution: | 1. Division of International Trade and Economics, Korea Maritime and Ocean University, 727 Taejong-ro, Yeongdo-Gu, Busan 606-791, Republic of Korea;2. Campus Saint-Jean, University of Alberta, Edmonton, AB T6C 4G9, Canada;3. School of Business, University of Alberta, Edmonton, AB T6G 2R6, Canada;4. Moore School of Business, University of South Carolina, Columbia, SC 29208, USA;5. SKKU Business School, Sungkyunkwan University, 25-2 Sungkyungkwan-ro, Seoul 110-745, Republic of Korea;1. College of Business Administration, University of Akron, Akron, OH 44325, USA;2. Management School, Chatham Building, University of Liverpool, Liverpool, L69 7ZH, UK;1. Plymouth Graduate School of Management & Plymouth Business School, University of Plymouth, Plymouth, United Kingdom;2. College of Business & Economics, UAE University, Al Ain, United Arab Emirates;3. Champagne School of Management, Troyes, France;4. IRG, Université Paris Est, Créteil, France;1. National University of Ireland, Galway, Ireland;2. LUMSA University, Rome, Italy;3. Waterford Institute of Technology, Ireland;1. Financial Management and Capital Markets, Technical University of Munich, Arcisstrasse 21, 80333 Munich, Germany;2. Erasmus School of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, the Netherlands |
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| Abstract: | For a large sample of 48 countries, we find robust evidence that strong creditor rights are associated with low long-term leverage across countries. We further find that strong creditor protection lowers long-term debt issuance, the extent to which investments are financed with long-term debt, and target leverage ratios. Finally, we find that firm and country characteristics influence the link between creditor protection and long-term leverage. Our results support the demand-side view that strong creditor protection discourages firms from making long-term cash flow commitments to service debt because managers and shareholders avoid the risk of losing control in the case of financial distress. |
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