@article{3432e00e1a0f4358a84f72e780a9d64f,
title = "Creditor rights and corporate risk-taking",
abstract = "We propose that stronger creditor rights in bankruptcy affect corporate investment choice by reducing corporate risk-taking. In cross-country analysis, we find that stronger creditor rights induce greater propensity of firms to engage in diversifying acquisitions that are value-reducing, to acquire targets whose assets have high recovery value in default, and to lower cash-flow risk. Also, corporate leverage declines when creditor rights are stronger. These relations are usually strongest in countries where management is dismissed in reorganization and are also observed over time following changes in creditor rights. Our results thus identify a potentially adverse consequence of strong creditor rights.",
keywords = "Bankruptcy code, Corporate reorganization, Diversification, Investment",
author = "Acharya, {Viral V.} and Yakov Amihud and Lubomir Litov",
note = "Funding Information: Acharya is C.V. Starr Professor of Finance. Amihud is Ira Leon Rennert Professor of Finance. We acknowledge with gratitude comments and suggestions that helped improve the paper by Barry Adler, Kenneth Ahern, Reena Aggarwal, Franklin Allen, Heitor Almeida, Meghana Ayyagari, Moshe Barniv, Bo Becker, Sreedhar Bharath, Bernie Black, Long Chen, Sid Chib, Jonathan Cohn, Jeff Coles, Phil Dybvig, Espen Eckbo, Alex Edmans, Isil Erel, Mara Faccio, Mike Faulkender, Julian Franks, Radha Gopalan, Todd Gormley, Bill Greene, Todd Henderson, Joel Houston, Kose John, Lutz Johanning, Ohad Kadan, Sandy Klasa, Anzhela Kniazeva, Diana Kniazeva, William Megginson, Todd Milbourn, Natalie Moyen, Ed Morrison, Holger Mueller, Harold Mulherin, Paige Ouimet, Troy Paredes, Katharina Pistor, Amiyatosh Purnanandam, Stefano Rossi, Antoinette Schoar, Alan Schwartz, Oren Sussman, Anjan Thakor, Rohan Williamson, Daniel Wolfenzon, Jeff Wurgler, David Yermack, Bernie Yeung, the seminar participants at Washington University in Saint Louis, NYU Salomon Center corporate governance seminar, University of Michigan, Tel Aviv University, Bar Ilan Iniversity, Hebrew University, Interdisciplinary Center in Herzliya, the 2008 Conference on Law and Economics at the University of Pennsylvania, Cornell University's Empirical Legal Studies Conference, 2008 UNC-Duke Corporate Finance Conference, the University of Gent 2008 Bankruptcy and Reorganization Conference, University of California at San Diego, University of Arizona, and especially two anonymous referees. We thank Simeon Djankov for providing access to the creditor rights data. Rong Leng provided excellent research assistance. A part of this paper was completed while Acharya was at London Business School. Acharya is grateful for research support from the ESRC (Grant no. R060230004) awarded to the London Business School Corporate Governance Research Center. ",
year = "2011",
month = oct,
doi = "10.1016/j.jfineco.2011.04.001",
language = "English (US)",
volume = "102",
pages = "150--166",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier B.V.",
number = "1",
}