Insolvency Regimes and Cross-Border Investment Decisions

Tatsiana Kliatskova and Loïc Baptiste Savatier

No 1862, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper investigates the effect of reforms of insolvency regulations on cross-border debt and equity investments at a sectoral level. Using disaggregated data from the Securities Holdings Statistics by Sector (SHSS) and OECD-indicators on the efficiency of insolvency regulations, we find that investors prefer to invest more in countries with more efficient insolvency frameworks. The effect, however, differs across sectors, with households and institutional investors being particularly sensitive. In addition, share-holders are mostly responsive to prevention and streamlining tools, while debt-holders respond more to availability of restructuring tools. Finally, we show that countries with developed financial markets and effective government are the ones that see the largest debt and equity inflows after reforms of insolvency regulations.

Keywords: Capital market integration; insolvency law; sectoral effects (search for similar items in EconPapers)
JEL-codes: F21 G15 G33 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2020
New Economics Papers: this item is included in nep-gen and nep-law
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