A basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority. Research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects. In contrast, this paper shows that ex post...

This paper examines the impact of cross-country variation in shareholders' and debt holders' rights on post-IPO performance and survival of newly listed stocks across the globe. Using a sample of 10,490 initial public offerings (IPOs) in 40 countries between 2000 and 2013, we find that post-IPO...

Using difference-in-difference approach, we find that strengthening creditor rights, after the staggered enactment of anti-recharacterization laws that enhanced the ability of creditors to repossess collateral during bankruptcy, leads to higher CSR and improves CSR strengths and CSR areas that...

Stronger creditor rights reduce credit costs and thus may allow firms to increase leverage and investments, but also increase distress costs and thus may prompt firms to lower leverage and undertake risk-reducing but unprofitable investments. Using a German bankruptcy law reform, on average, we...

In an attempt to match US bankruptcy law, many European countries have reformed their insolvency laws towards a regime that fosters corporate restructuring. This paper evaluates the implications of these reforms. Based on a staggered difference-in-differences analysis around eight insolvency...

Theories linking the reuse of collateral to financial instability have been influential in macroeconomics but empirical evidence on them is limited. I utilize a change to bankruptcy treatment of repo collateral to provide causal evidence that strengthened creditor rights increase credit supply...

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms, a panel of private and public firms, and tax return data from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with...

We examine whether and how creditor monitoring affects corporate social responsibility (CSR) activities through the observable event of debt covenant violations. Covenant violations shift the control rights to creditors, allowing creditors to strengthen monitoring on firm policies. Employing a...

We exploit a quasi-natural experiment (the adoption of state anti-recharacterization (AR) laws) to study the effect of strengthened creditor rights on corporate mergers and acquisitions (M&A). We find that, following the passage of AR laws, firms significantly reduce M&A activities. This effect...

We develop hypotheses regarding the association between two types of creditor rights and bank loan losses. Contrary to prior research conclusions, bank lending risk is negatively associated with both restrictions on reorganization and the secured creditor being paid first. Using accounting...

We examine the impact of creditor control rights on corporate acquisitions. Nearly 75% of loan agreements include restrictions that limit borrower acquisition decisions throughout the life of the contract. Following a financial covenant violation, creditors use their bargaining power to tighten...

An extensive body of international business research examines how cross-country variations in legal institutions influence corporate finance practices. Building on this literature, as well as the literature on capital structure and product market interactions, we investigate the effect of an...

This paper provides a comprehensive theoretical and empirical analysis of "creditor rights" and "information sharing" throughout over 1.8 million public and private firms in Europe. We show that many of the outcomes associated with greater levels of creditor rights can be obtained with higher...

We examine how creditor protection affects firms with different levels of owners' and managers' personal costs of bankruptcy. Theoretically, we show that firms with high personal costs of bankruptcy borrow and invest more under a more debtor-friendly management stay system, whereas firms with...

We study how creditor rights and culture interact with one another and influence corporate dividend payout policy. We identify two distinct substitution effects. First, creditors substitute poor legal standing with lower dividends, but only in countries defined as either individualist or with...

In 1973, experts Homer Kripke and John Slain published a seminal study titled “The Interface Between Securities Regulation and Bankruptcy.” That lengthy analysis, contributed by, respectively, a former Securities and Exchange Commission official and a professor of law, examined the status...

Exploiting the staggered adoption of anti-recharacterization laws across various U.S. states as quasi-exogenous shocks to secured lenders' ability to repossess assets in bankruptcy, we find that the strengthening of creditor rights is associated with a significant decrease in the cost of equity...

This paper documents that resource reallocation across firms is an important mechanism through which creditor rights affect real outcomes. I exploit the staggered adoption of an international convention that provides globally consistent strong creditor protection for aircraft finance. After this...

Using creditor litigation data from China, we investigate whether creditors can participate in corporate governance when agency conflict between shareholders and creditors is severe. By comparing firms that have experienced creditor lawsuits (litigation firms) with those that have not...

In 2018 there were almost three hundred thousand petitions filed under Chapter 13 of the Bankruptcy Code. But of this number fifty-five percent of these cases were dismissed. When the Chapter 13 trustee is holding funds yet to be disbursed at dismissal, a split in authority exists. Should the...

This study examines the effects of the firm's ownership concentration and its institutional environment on corporate debt maturity choices. As ownership concentration and debt maturity are alternative governance mechanisms, we theorize and investigate whether their association is influenced by...

We examine whether the effect of increased creditor rights on corporate borrowing depends on firm's access to internal capital. By exploiting a creditor protection reform in India, empirical outcomes strongly indicate that strengthening of creditor rights leads to increased corporate borrowing...

I examine whether higher creditor rights prevent strategic default. Borrowers who cross either of two thresholds are exempt from a creditor rights law in India. Using a loan day-level dataset, I find that loan performance is better when the law applies and that outperformance increases after a...

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...

In 2011, German legislators passed the latest reform to German Insolvency Law (ESUG). ESUG mandates that creditors of larger firms can exert more influence on the appointment of the insolvency administrator, resulting in a shift of power from shareholders to creditors. Based on...

We examine the ex ante effect of an exogenous reduction in secured creditor rights on corporate financial and investment policy. We find that firms increase corporate leverage using both the reduced distress costs of secured debt and the positive externalities the lower secured creditor rights...

I analyze the effect of stronger creditor rights on productivity, using U.S. Census microdata. Following the adoption of anti-recharacterization laws that give lenders greater access to the collateral of firms in financial distress, total factor productivity of treated plants increases by 2.6...

Agency problem between shareholders and creditors can be reduced by two mechanisms namely reputation-building and debt covenant. Prior studies document supporting evidence for both hypotheses with a positive relationship between creditor rights and dividend policy. However, they fail to test...

This study examines how creditor interventions after debt covenant violations affect corporate tax avoidance. Using a regression discontinuity design, we find that creditor interventions increase borrowers' tax avoidance. This effect is concentrated among firms with weaker shareholder governance...

This study examines the consequences of conflicts between creditors. Using the setting of debt covenant violations, I employ a regression discontinuity design to identify the effect of bank interventions on their borrowers' trade credit. The results show that trade credit experiences a...

In private debt contracts with a borrower consent clause, a creditor's decision to transfer its portion of the loan can be thwarted if the borrower denies the consent to loan transfer. We find that the probability of the inclusion of a borrower consent clause in a private debt contract increases...

International financial institutions (IFIs) generally enjoy preferred creditors treatment (PCT). Although PCT rarely appears in legal contracts, when sovereigns restructure bilateral or commercial debts they normally pay IFIs in full. This paper presents a model where a creditor, such as an IFI,...

Within the same debt contract, some financial covenants are considerably more restrictive than others. I exploit this heterogeneity in covenant design and show that the design of the most restrictive covenant is systematically associated with covenant outcomes - compliance, violations, or...

Using the state-level adoption of anti-recharacterization laws (ARLs), this paper examines how strengthening the rights of some creditors affects other creditors’ claims. The adoption of an ARL significantly increases the rights of securitization creditors by denying bankruptcy court judges’...