Creditor rights, financial health, and corporate investment efficiency

Francisco González

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This paper analyzes the influence of creditor rights on investment efficiency and how firms’ financial health shapes this influence. Using time-series changes within a country and cross-country variations in creditor rights, I find that stronger protection of creditors improves investment efficiency in healthy firms but worsens it in distressed firms. The impact on investment efficiency operates more through changes in overinvestment than in underinvestment. Alternative proxies for creditor rights control for both contractual and enforcement rights. The results are robust to alternative model specifications and to controls for omitted variables.

Keywords: Corporate investment; Creditor rights; Financial health; Overinvestment (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 O40 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818300779

DOI: 10.1016/j.najef.2018.11.002

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