Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices
This paper examines how firm characteristics, legal rules, and financial development affect corporate finance decisions. In contrast to the existing literature, I use data on unlisted companies to show that institutions play an important role in determining the extent of agency problems. In particular, I find that in countries with good creditor protection, it is easier for firms investing in intangible assets to obtain loans. The protection of creditor rights is also important for ensuring access to long-term debt for firms operating in sectors with highly volatile returns. Ceteris paribus, firms are more leveraged in countries where the stock market is less developed. Unlisted firms appear more indebted than listed companies even after controlling for firm characteristics such as profitability, size, and the ability to provide collateral. Finally, institutions that favor creditor rights and ensure stricter enforcement not only are associated with higher leverage, but also with greater availability of long-term debt.
Volume (Year): 38 (2003)
Issue (Month): 01 (March)
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- Demirguc-Kunt, Asl1 & Maksimovic, Vojislav, 1996. "Institutions, financial markets, and firms'choice of debt maturity," Policy Research Working Paper Series 1686, The World Bank.
- Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002.
"Investor Protection and Corporate Valuation,"
Journal of Finance,
American Finance Association, vol. 57(3), pages 1147-1170, 06.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection and Corporate Valuation," NBER Working Papers 7403, National Bureau of Economic Research, Inc.
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