Debt enforcement, investment, and risk taking across countries

Favara, Giovanni; Morellec, Erwan; Schroth, Enrique; Valta, Philip (2017). Debt enforcement, investment, and risk taking across countries. Journal of Financial Economics, 123(1), pp. 22-41. North-Holland 10.1016/j.jfineco.2016.09.002

Preview	Text 2017-Debt-enforcement.pdf - Accepted Version Available under License Publisher holds Copyright. Download (422kB) | Preview
	Text 1-s2.0-S0304405X16301532-main.pdf - Published Version Restricted to registered users only Available under License Publisher holds Copyright. Download (774kB)

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences- in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.

Interest & Impact

Downloads

450 since deposited on 14 Aug 2017
99 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item