Scientific article
OA Policy
English

Debt enforcement, investment, and risk taking across countries

Published inJournal of financial economics, vol. 123, no. 1
Publication date2017
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
Citation (ISO format)
FAVARA, Giovanni et al. Debt enforcement, investment, and risk taking across countries. In: Journal of financial economics, 2017, vol. 123, n° 1.
Main files (1)
Article (Accepted version)
accessLevelPublic
Identifiers
  • PID : unige:87915
Journal ISSN0304-405X
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570downloads

Technical informations

Creation27/09/2016 15:43:00
First validation27/09/2016 15:43:00
Update time15/03/2023 00:47:38
Status update15/03/2023 00:47:37
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