Debt Enforcement, Investment, and Risk Taking Across Countries

Giovanni Favara, Erwan Morellec, Enrique J. Schroth and Philip Valta
Additional contact information
Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute
Enrique J. Schroth: City University London

No 13-64, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms' investment and risk depends on the firm-specific probability of default. A difference-in-differences analysis of firms' investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.

Keywords: Debt renegotiation, Default; Investment , Asset sales, Risk-taking (search for similar items in EconPapers)
JEL-codes: G31 G32 G33 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013-12
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ssrn.com/abstract=2377253 (application/pdf)

Related works:
Journal Article: Debt enforcement, investment, and risk taking across countries (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1364

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().