Journal Article

Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?

Radhakrishnan Gopalan, Abhiroop Mukherjee and Manpreet Singh

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 29, issue 10, pages 2774-2813
Published in print October 2016 | ISSN: 0893-9454
Published online June 2016 | e-ISSN: 1465-7368 | DOI: http://dx.doi.org/10.1093/rfs/hhw042
Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?

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Using the staggered introduction of fast-track debt recovery courts in India, we estimate the causal effect of a reduction in debt contract enforcement costs on financing and asset maturity. A reduction in enforcement costs is associated with an increase in long-term debt and a decrease in short-term debt and trade credit. The increase in debt maturity is confined to firms that borrow from multiple lenders, have abnormally short debt maturity structures before the reform, and to smaller firms. Firms also reduce the number of banking relationships, and increase the proportion of long-term assets after the reform.

Received June 12, 2014; accepted September 17, 2015 by Editor Andrew Karolyi.

Keywords: F34; G32; G33; G38; K42

Journal Article.  18411 words.  Illustrated.

Subjects: International Finance ; Corporate Governance ; Bankruptcy ; Corporate Regulation ; Law and Economics

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