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Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws

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  • Tut, Daniel

Abstract

This paper examines the effects of improvement in creditors’ rights protection on firms’ financing choices and securities issuance. To address these issues, I exploit exogenous variation in creditors’ rights protection induced by the staggered adoption of anti-recharacterization laws by some U.S. states. The laws enhance the ability of creditors to repossess collateral during bankruptcy. Using a difference-in-difference methodology to estimate the causal impacts, I find that: [1] the laws are positively related to debt capacity and debt maturity. Firms increase market leverage and substitute away from costly short-term debt financing into long-term debt financing [2] the laws are positively related to debt issuance [3] the laws are negatively related to equity issuance. My analysis further demonstrates that proactive securities issuers are significantly more responsive to the adoption of anti-recharacterization laws than passive securities issuers.

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  • Tut, Daniel, 2019. "Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws," MPRA Paper 102460, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102460
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    Cited by:

    1. Zhang, Huilin & Boubaker, Sabri & Ni, Xiaoran, 2023. "Creditor rights and real earnings management: Evidence from quasi-natural experiments," Finance Research Letters, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Creditors’ Rights; Leverage; Debt Issues; Equity Issues; Pledgeable Assets;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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

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