Abstract
An extensive body of international business research examines how cross-country variations in legal institutions influence corporate finance practices. Building on this literature, as well as the literature on capital structure and product market interactions, we investigate the effect of an important dimension of legal institutions – creditor rights – on the product market performance of highly leveraged firms. Using a sample of 37,422 firms from 60 countries over the 1989–2016 period, we find that strong creditor protection benefits less leveraged firms, but adversely affects highly leveraged firms by increasing the adverse responses of customers, competitors, and employees. The adverse effect of creditor rights on the costs of high leverage is more pronounced for firms in countries with developed debt markets and banking systems, but mostly insignificant for firms in countries with developed equity markets and low information asymmetry. Our study offers new insights into the international business literature and contributes to the debate on the role of creditor protection by uncovering a potential cost based on capital structure and product market interactions.
Résumé
Un vaste ensemble de recherches en international business examine la manière dont les variations entre pays des institutions juridiques influencent les pratiques financières des entreprises. En s’appuyant sur cette littérature, ainsi que sur la littérature sur la structure du capital et les interactions du marché des produits, nous étudions l’effet d’une dimension importante des institutions juridiques - les droits des créanciers - sur la performance du marché des produits des entreprises à fort endettement. En utilisant un échantillon de 37 422 entreprises de 60 pays sur la période 1989–2016, nous constatons qu’une forte protection des créanciers profite aux entreprises à faible endettement, mais nuit aux entreprises à fort endettement en augmentant les réactions négatives des clients, des concurrents et des employés. L’effet négatif des droits des créanciers sur les coûts de l’endettement élevé est plus prononcé pour les entreprises des pays dont les marchés de la dette et les systèmes bancaires sont développés, mais il est généralement insignifiant pour les entreprises des pays dont les marchés des actions sont développés et où l’asymétrie de l’information est faible. Notre étude offre de nouvelles perspectives à la littérature sur l’international business et contribue au débat sur le rôle de la protection des créanciers en mettant en évidence un coût potentiel basé sur la structure du capital et les interactions entre les marchés de produits.
Resumen
Un extenso cuerpo de investigación en negocios internacionales examina cómo las variaciones entre países en instituciones legales influencia las prácticas de finanzas corporativas. Basándonos en esta literatura, como también en la literatura de la estructura de capital y las interacciones del mercado de productos, investigamos el efecto de una dimensión importante de las instituciones legales -los derechos de los acreedores- en el desempeño del mercado de productos en empresas altamente apalancadas. Usando una muestra de 37.422 empresas de 60 países en el período 1989–2016, encontramos que la protección fuerte de los acreedores beneficia a las empresas menos apalancadas, pero afecta adversamente las empresas altamente apalancadas al aumentar las respuestas adversas de los consumidores, competidores y empleados. El efecto adverso de los derechos de los acreedores en los costos de alto apalancamiento es más pronunciado para empresas en países con mercados de deuda desarrollados y sistemas bancarios, pero en su mayoría insignificantes para empresas en países con mercados de renta variable desarrollados y baja asimetría de información. Nuestro estudio ofrece nuevas comprensiones de la literatura de negocios internacionales y contribuye al debate del rol de la protección del acreedor al dejar al descubierto un costo potencial basado en la estructura de capital y las interacciones del mercado de productos.
Resumo
Um extenso conjunto de pesquisa em negócios internacionais examina como as variações entre países nas instituições jurídicas influenciam práticas de finanças corporativas. Com base nesta literatura, bem como na literatura sobre estrutura de capital e interações no mercado de produtos, investigamos o efeito de uma importante dimensão de instituições legais - direitos do credor - no desempenho do mercado de produtos de empresas altamente alavancadas. Utilizando uma amostra de 37.422 empresas de 60 países no período de 1989 a 2016, descobrimos que uma forte proteção a credores beneficia empresas menos alavancadas, mas afeta adversamente empresas altamente alavancadas pelo aumento de respostas adversas de clientes, concorrentes e funcionários. O efeito adverso de direitos de credores nos custos de alta alavancagem é mais pronunciado para empresas em países com mercados de endividamento e sistemas bancários desenvolvidos, mas na maioria das vezes insignificante para empresas em países com mercados de ações desenvolvidos e pequena assimetria de informação. Nosso estudo oferece novas insights para a literatura de negócios internacionais e contribui para o debate sobre o papel da proteção a credores, descobrindo um custo potencial com base na estrutura de capital e em interações do mercado de produtos.
摘要
国际商务研究广泛探讨了法律制度中的跨国差异如何影响公司的财务实践。基于这些文献以及有关资本结构和产品市场互动的文献, 我们研究了法律制度的一个重要维度 — 债权人权利 — 对高杠杆公司产品市场绩效的影响。使用1989–2016年的来自60个国家的37,422家公司的样本, 我们发现强大的债权人保护会给较少杠杆的公司带来好处, 但会由于客户、竞争对手和员工的不利反应的增加而对高杠杆公司产生不利影响。债权人权利对高杠杆成本的不利影响对在有发达债务市场和银行系统的国家中的公司更为明显, 而对在股票市场发达且信息不对称性较低的国家中的公司则几乎没有影响。我们的研究为国际商务文献提供了新洞见, 并通过发现基于资本结构和产品市场相互作用的潜在成本, 为有关债权人保护作用的辩论做出了贡献。
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Acknowledgements
We thank the Editor Lemma Senbet, two anonymous reviewers, Allen Berger, Kee-Hong Bae, Matthew T. Billett, Narjess Boubakri, Ruiyuan Chen, Imed Chkir, Fabio Moneta, Samir Saadi, He Wang, Yukihiro Yasuda, Xiaolan Zheng, and seminar participants at Bryant University, Hitotsubashi University, the University of Ottawa, the University of South Carolina, 2018 Financial Management Association Meeting (San Diego), and 2018 Academy of International Business Meeting (Minneapolis) for their helpful comments. El Ghoul acknowledges financial support from the Social Sciences and Humanities Research Council of Canada. We are responsible for all errors.
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Accepted by Lemma Senbet, Area Editor, 24 January 2020. This article has been with the authors for six revisions.
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El Ghoul, S., Guedhami, O., Kwok, C.C.Y. et al. The role of creditor rights on capital structure and product market interactions: International evidence. J Int Bus Stud 52, 121–147 (2021). https://doi.org/10.1057/s41267-020-00309-x
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DOI: https://doi.org/10.1057/s41267-020-00309-x