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

Tut, Daniel (2019): Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Creditors’ Rights, Leverage, Debt Issues, Equity Issues, Pledgeable Assets
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

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