Creditor rights,financial health,and corporate investment efficiency |
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| Affiliation: | 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. Department of Accounting and Finance, School of Management, Zhejiang University, China;2. Business School, University of Queensland, Australia |
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| Abstract: | This paper analyzes the influence of creditor rights on investment efficiency and how firms’ financial health shapes this influence. Using time-series changes within a country and cross-country variations in creditor rights, I find that stronger protection of creditors improves investment efficiency in healthy firms but worsens it in distressed firms. The impact on investment efficiency operates more through changes in overinvestment than in underinvestment. Alternative proxies for creditor rights control for both contractual and enforcement rights. The results are robust to alternative model specifications and to controls for omitted variables. |
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| Keywords: | Corporate investment Creditor rights Financial health Overinvestment |
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