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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/28295
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| Title: | Creditor rights and corporate risk-taking |
| Authors: | Acharya, Viral
Amihud, Yakov
Litov, Lubomir |
| Issue Date: | 3-Sep-2009 |
| Series/Report no.: | FIN-09-011 |
| Abstract: | We analyze the link between creditor rights and firms’ investment
policies, proposing that stronger creditor rights in bankruptcy reduce
corporate risk-taking. In cross-country analysis, we find that stronger
creditor rights induce greater propensity of firms to engage in
diversifying acquisitions, which result in poorer operating and
stock-market abnormal performance. In countries with strong creditor
rights, firms also have lower cash flow risk and lower leverage, and
there is greater propensity of firms with low-recovery assets to acquire
targets with high-recovery assets. These relationships are strongest in
countries where management is dismissed in reorganization, and are
observed in time-series analysis around changes in creditor rights. Our
results question the value of strong creditor rights as they have an
adverse effect on firms by inhibiting management from undertaking risky investments. |
| URI: | http://hdl.handle.net/2451/28295 |
| Appears in Collections: | Finance Working Papers
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