Template-Type: ReDIF-Paper 1.0
Author-Name: Biswajit Banerjee
Author-Name-First: Biswajit
Author-Name-Last: Banerjee
Author-Email: biswajit.banerjee@ashoka.edu.in
Author-Workplace-Name: Ashoka University; National Bank of Slovakia
Author-Name: Risto Herrala
Author-Name-First: Risto
Author-Name-Last: Herrala
Author-Email: risto.herrala@bof.fi
Author-Workplace-Name: Bank of Finland Institute for Emerging Economies (BOFIT)
Title: An agency cost channel from creditor rights reforms to leverage
Abstract: The paper investigates the influence of creditor rights reforms on leverage. Based on a partial equilibrium agency cost model, we propose a novel channel running from the owner/manager’s private bankruptcy costs to leverage. Such costs mitigate the firms’ agency problem toward creditors, thereby increasing credit limits and leverage. The proposition is tested with data from India 2011–2020, a period that saw the strengthening of creditor rights. We find that the reform caused leverage to fall, which is indicative of a decrease in owner/manager’s bankruptcy costs. We also find evidence of a decline in credit limits as predicted by the proposed theory.
length: 23
Creation-Date: 20250814
Revision-Date: 
Publication-Status: 
File-URL:/www/wwwashokaeduin_628/public/dp/RePEc/ash/wpaper/paper154_0.pdf
File-Format: Application/pdf 
Number: 154
Handle: RePEc:ash:wpaper:154