How creditor rights affect the issuance of public debt: The role of credit ratings

Xian Gu, Padma Kadiyala and Xin Wu Mahaney-Walter

Journal of Financial Stability, 2018, vol. 39, issue C, 133-143

Abstract: We propose that credit ratings act as an information channel which, combined with more power being given to creditors by countries strengthening creditor rights, leads to an increase in the supply of public debt. From a firm-level dataset covering 51 developed and developing countries for 1989 through 2013, we find that in countries with stronger creditor rights, firms tend to have higher credit ratings. We confirm that in these countries, firms with higher credit ratings exhibit a greater issuance of public debt than that of equity. As further evidence that credit ratings reduce agency costs of debt, we find that improvements in creditor rights and resulting higher credit ratings increase capital expenditures among firms experiencing severe bondholder-shareholder conflicts.

Keywords: Creditor rights; Credit rating; Bond; Investment (search for similar items in EconPapers)
JEL-codes: E22 G31 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:39:y:2018:i:c:p:133-143

DOI: 10.1016/j.jfs.2018.11.001

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