Creditor rights and corporate risk-taking
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Creditor rights and corporate risk-taking
Creditor rights and corporate risk-taking
Creditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingversity-Stern school of Business vaniihudfeXiern.nvu.eduLubomir LilovWashington University in St. Louis-Olin School of Business litovfffiwustl.edu39805AbstractWe analyze the link between creditor rights and firms’ investment policy, proposing that stronger creditor rights in bankruptcy reduce corpor Creditor rights and corporate risk-takingate risk-taking. Employing countrylevel data, we find that stronger creditor rights are associated with a greater propensity of firms to engage in divCreditor rights and corporate risk-taking
ersifying mergers, and this propensity changes in response to changes in the country creditor rights. Also, in countries with stronger creditor rightsCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-taking in countries where management is dismissed in reorganization, suggesting a managerial agency effect. Our results question the value of strong creditor rights, which may have adverse effect on firms by inhibiting them from undertaking risky investments.Keywords: bankruptcy code, corporate reorganiza Creditor rights and corporate risk-takingtion, investment, diversificationJEL Classifications: G31, G32, G33, G34“ Ira Leon Rennert professor of finance.We acknowledge with gratitude commentsCreditor rights and corporate risk-taking
and suggestions that helped improve the paper by Barry Adler, Kenneth Ahem. Reena Aggarwa), Franklin Allen. Heitor Almeida. Meghana Ayyagari. Moshe BCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingFaulketxler, Julian Franks. Radha Gopalan. Todd Gormley. Bill Greene, Todd Hendetson, Kose John. Lixz Jobinning. Ohad Kadan. Anzhela Kniazeva. Diana Kniazeva, Tcdd Milboum. Natalie Moyen. Ed Morrison. Holger Mueller. Paige Ouimet. Troy Paredes. Katharina Pistor. Stefano Rossi. Antoinette Schoar. Ala Creditor rights and corporate risk-takingr. Schwartz. Oren Sussman. Anjan Thakor, Rohan Williamson. Daniel Wolfenzon. Jeff Wurgler. David Yermack. Bernie Yeung, die seminar participants at WaCreditor rights and corporate risk-taking
shington University in Saint Loms, NYU Salomon Center corporate governance seminar. University of Michigan, the 2008 Conference on Law and Economics aCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingent’s Bankruptcy and Reorganization Conference and especially an anonymous referee. We thank Simeon Djankov and Caralee McLeish for providing access to their creditor rights data. Rong Leng provided excellent research assistance.Creditor rights and corporate risk-takingAbstractWe analyze the link be Creditor rights and corporate risk-takingtween creditor rights and firms’ investment policy, proposing that stronger creditor rights in bankruptcy reduce corporate risk-taking. Employing counCreditor rights and corporate risk-taking
try-level data, we find that stronger creditor rights are associated with a greater propensity of firms to engage in diversifying mergers, and this prCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingower, and acquirers with low-recoveiy assets prefer targets with high-recovery' assets. These relationships are strongest in countries where management is dismissed in reorganization, suggesting a managerial agency effect. Our results question the value of strong creditor rights, which may have adve Creditor rights and corporate risk-takingrse effect on firms by inhibiting them from undertaking risky investments.Keywords: bankruptcy code, corporate reorganization, investment, diversificaCreditor rights and corporate risk-taking
tionJEL Classifications: G31, G32, G33, G342I. IntroductionThrough history, delaull on debt has incurred hdrsh punishment. In biblical limes and in anCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingt with maiming.1 rhe United Kingdom had debtors’ prisons until their abolishment in the 1869 Debtors Act. Now, tire norm is limited liability, which limits creditor rights in pursuing debtors when drey default on promised payments. Smith and Warner (1979) document that creditors impose restrictions Creditor rights and corporate risk-takingon financial policies of linns through covenants, even prior to default, in order to control shareholder action that could reduce firm value. However,Creditor rights and corporate risk-taking
bankruptcy laws which uniformly apply to all firms usually have precedence over private firm-specific contracts and therefore lead to inefficient outCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takings have on firms’ investments? While harsh penalty in default reduces fraud and opportunistic behavior by debtors, might it also inhibit entrepreneurial, bona-fide risky investments? These are the questions we address iti this paper.Research on creditor rights has mainly focused on the link between c Creditor rights and corporate risk-takingreditor rights and financing policies. Djankov, McLeish. and Shleifer (2007a, 2007b), for example, document that creditor rights are associated with hCreditor rights and corporate risk-taking
igher aggregate lending, in the cross-section of countries as well as in time-series around creditor rights changes.- This evidence is considered suppCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingxpropriate firm’s value, and thereby reduce the costs that result from the conflict of interests between owners and providers OÍ debt capital (Jensen and Meckling (1976)).Tn contrast, this paper studies the link between creditor rights and investment policy. We propose that strong creditor rights in Creditor rights and corporate risk-takingduce firms to engage in risk-reducing investments such as diversifying acquisitions that are potentially ineffic ient and reduce value, rhe reason isCreditor rights and corporate risk-taking
as follows. Strong creditor lights in default lead to inefficientbl '150 BC: Ibe Twelve lableu. Section 111. Debt. Ibe penalty ranged Iruiu iaipiiaoimCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingt European countries through the creation of a collateral registry boosted lending. Vig <2007) shoves that firms’ propensity to borrow was however, reduced in India when creditor rights were strengthened.3liquidations that extinguish the continuation option of firm’s enterprise and hurt stockholders Creditor rights and corporate risk-taking. And. when creditor rights mandate the dismissal of management they impose a private, or in other words, a personal cost on managers. To avoid theseCreditor rights and corporate risk-taking
costs, shareholders and managers lower the likelihood of distress by diversifying or reducing operating risk. If such risk reduction results in value Creditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingysis studies this hypothesized effect of creditor rights on the risk-reducing activities of firms. We exploit as an explanatory variable the variation of creditor rights across countries in their bankruptcy codes. Pjankov et al. (2007a) show evidence that creditor rights have changed little between Creditor rights and corporate risk-takinglate 1970s and early 1990s, the beginning of our dataset. Therefore, we can consider creditor rights in a country to be a function of its legal originCreditor rights and corporate risk-taking
and exogenous to the nature of the country’s overall corporate investments. Even the few creditor right changes within a country; whose effects we alCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-taking-taking whose variation across countries we seek to explain. We find the following:-1Stronger creditor rights induce firms to prefer risk-reducing investments. Using acquisitions of other firms as a publicly-observed corporate investment, we find that stronger creditor rights in a country are associ Creditor rights and corporate risk-takingated with a greater propensity to do diversifying acquisitions. Furthermore, changes in a country’s creditor rights affect the merger and acquisitionsCreditor rights and corporate risk-taking
(M&A) activity in a similar direction: the extent of diversification through M&A increases following the strengthening of creditor rights and declineCreditor rights and corporate risk-takingViral V. AcharyaLondon Business School, NYU-Stern and CEPR vacharvafffistem.nyu.eduYakov Amihud’New York Univ Creditor rights and corporate risk-takingditor rights. (We discuss below the evidence on the value effect of diversifying mergers.)4-2II) countries with stronger creditor rights, firms appear to choose a mode of operation that reduces operating or cash flow risk, measured by the standard deviation of firms’ ROA.We obtain these results both Creditor rights and corporate risk-taking in tests at the level of individual acquisitions or firms and at an aggregate country level. Overall, these results are strongest (statistically as wCreditor rights and corporate risk-taking
ell as economically) for the creditor rights corresponding to (i) whether there is no automatic stay on the debtor’s assets in bankruptcy and (ii) wheGọi ngay
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