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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26349
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| Title: | Creditor rights and corporate risk-taking |
| Authors: | Acharya, Viral V.
Amihud, Yakov
Litov, Lubomir |
| Issue Date: | 6-Feb-2008 |
| Series/Report no.: | FIN-07-037 |
| Abstract: | We propose that stronger creditor rights in bankruptcy reduce corporate
risk-taking. Employing country-level data, we find that strong creditor
rights are associated with a greater propensity of firms to engage in
diversifying mergers, and this propensity changes in response to changes
in the country creditor rights. Also, in countries with stronger
creditor rights companies’ operating risk is lower, and acquirers
with low-recovery assets prefer targets with high-recovery assets. These
relationships are strongest in countries where management is dismissed
in reorganization, suggesting an agency-cost effect.Our results suggest
that there might be a “dark” side to strong creditor rights
in that they can induce costly risk avoidance in corporate policies.
Thus, stronger creditor rights may not necessarily be optimal. |
| URI: | http://hdl.handle.net/2451/26349 |
| Appears in Collections: | Finance Working Papers
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