Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?

Radhakrishnan Gopalan; Abhiroop Mukherjee; Manpreet Singh

doi:10.1093/rfs/hhw042

Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?

Radhakrishnan Gopalan¹; Abhiroop Mukherjee²; Manpreet Singh³

¹ Washington University in St. Louis · ² Hong Kong University of Science and Technology · ³ Georgia Institute of Technology

Review of Financial Studies 2016

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.

DOI: 10.1093/rfs/hhw042
Volume: 29 (10)
Pages: 2774-2813
Language: en
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