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Creditor rights and capital structure: Evidence from international data

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  • Cho, Seong-Soon
  • El Ghoul, Sadok
  • Guedhami, Omrane
  • Suh, Jungwon

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.

Suggested Citation

  • Cho, Seong-Soon & El Ghoul, Sadok & Guedhami, Omrane & Suh, Jungwon, 2014. "Creditor rights and capital structure: Evidence from international data," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 40-60.
    • Handle: RePEc:eee:corfin:v:25:y:2014:i:c:p:40-60
    DOI: 10.1016/j.jcorpfin.2013.10.007
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    More about this item

    Keywords

    Creditor rights; Investor protection; Capital structure; Bankruptcy;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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