Debt structure when bankruptcy law offers incentives to restructure
Iftekhar Hasan (),
Kose John and
No 13/2016, Research Discussion Papers from Bank of Finland
We augment the LLSV creditor rights index with a new “restructuring index” that measures the incentives provided to creditors to grant concessions outside formal bankruptcy. We study the joint impact of the two indexes on a firm’s leverage policy. We show that the two indexes have at most a statistically weak effect on the level of long-term debt. Instead, the two indexes affect the distribution of long-term debt into bank debt, public debt and private placements. Bank debt increases when the values of both indexes are high. Public debt increases when the creditor rights index is high, but the restructuring index is low, and private placements increase when the restructuring index is high, but the creditor rights index is low. Smaller firms with fewer tangible assets borrow more from banks when both the creditor rights and restructuring indexes are high. When aggregated at the country level, these firm-level results suggest that bankruptcy law can influence the relative importance of credit and equity markets as sources of financing GDP growth.
JEL-codes: G32 G33 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2016_013
Access Statistics for this paper
More papers in Research Discussion Papers from Bank of Finland Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Series data maintained by Minna Nyman ().