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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27877
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| Title: | Creditor rights and corporate risk-taking |
| Authors: | Acharya, Viral
Amihud, Yakov
Litov, Lubomir |
| Issue Date: | 6-Feb-2009 |
| Series/Report no.: | FIN-08-031 |
| Abstract: | We analyze the link between creditor rights and firms’ investment
policy, proposing that stronger creditor rights in bankruptcy reduce
corporate risk-taking. Employing country-level data, we find that
stronger 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, operating risk of firms 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 a managerial agency effect.
Our results question the value of strong creditor rights, which may have
adverse effect on firms by inhibiting them from undertaking risky investments. |
| URI: | http://hdl.handle.net/2451/27877 |
| Appears in Collections: | Finance Working Papers
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