Access to internal capital, creditor rights and corporate borrowing: does group affiliation matter?

Chandra Thapa, Sandeep Rao, Hisham Farag, Santosh Koirala

Research output: Contribution to journalArticle

Abstract

We examine whether the effect of increased creditor rights on corporate borrowing depends on firms’ access to internal capital. By exploiting a creditor protection reform in the Indian emerging market, empirical outcomes strongly indicate that strengthening of creditor rights leads to increased corporate borrowing among firms that have constrained access to internal capital compared to business group affiliated firms, which have relatively easier access to internal capital. Further, the increased corporate borrowing by firms with constrained access to internal capital, in the post-reform period, is associated with a greater expansion of real investments, improved operational performance, and better market valuation. Taken together, these findings indicate that expanding creditor rights may aid in improving allocative efficiency.
Original languageEnglish
JournalJournal of Corporate Finance
Early online date27 Jan 2020
DOIs
Publication statusE-pub ahead of print - 27 Jan 2020

Fingerprint

Borrowing
Creditor rights
Business groups
Business performance
Market valuation
Allocative efficiency
Emerging markets

Keywords

  • creditor protection
  • internal capital
  • standalone firms
  • business group firms
  • corporate borrowing
  • firm performance

Cite this

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abstract = "We examine whether the effect of increased creditor rights on corporate borrowing depends on firms’ access to internal capital. By exploiting a creditor protection reform in the Indian emerging market, empirical outcomes strongly indicate that strengthening of creditor rights leads to increased corporate borrowing among firms that have constrained access to internal capital compared to business group affiliated firms, which have relatively easier access to internal capital. Further, the increased corporate borrowing by firms with constrained access to internal capital, in the post-reform period, is associated with a greater expansion of real investments, improved operational performance, and better market valuation. Taken together, these findings indicate that expanding creditor rights may aid in improving allocative efficiency.",
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Access to internal capital, creditor rights and corporate borrowing : does group affiliation matter? / Thapa, Chandra; Rao, Sandeep; Farag, Hisham; Koirala, Santosh.

In: Journal of Corporate Finance, 27.01.2020.

Research output: Contribution to journalArticle

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AU - Koirala, Santosh

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