Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws

Daniel Tut

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the effects of improvement in creditors’ rights protection on firms’ financing choices and securities issuance. To address these issues, I exploit exogenous variation in creditors’ rights protection induced by the staggered adoption of anti-recharacterization laws by some U.S. states. The laws enhance the ability of creditors to repossess collateral during bankruptcy. Using a difference-in-difference methodology to estimate the causal impacts, I find that: [1] the laws are positively related to debt capacity and debt maturity. Firms increase market leverage and substitute away from costly short-term debt financing into long-term debt financing [2] the laws are positively related to debt issuance [3] the laws are negatively related to equity issuance. My analysis further demonstrates that proactive securities issuers are significantly more responsive to the adoption of anti-recharacterization laws than passive securities issuers.

Keywords: Creditors’ Rights; Leverage; Debt Issues; Equity Issues; Pledgeable Assets (search for similar items in EconPapers)
JEL-codes: G2 G21 G30 G31 G32 G33 (search for similar items in EconPapers)
Date: 2019-10-24
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (1)

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