Judicial efficiency and capital structure: An international study

Attaullah Shah, Hamid Ali Shah, Jason M. Smith, Giuseppe (Joe) Labianca

Research output: Contribution to journalArticlepeer-review

38 Scopus citations

Abstract

We investigate a particular aspect of creditor rights, judicial efficiency, and its influence on firms' corporate leverage in 69 countries. Increasing creditor rights makes credit more readily available due to greater loan supply, but firms use less leverage to avoid premature liquidation. We find that efficient judicial systems are associated with lower corporate leverage ratios. Managers perceive higher leverage in the presence of more efficient judicial systems as a serious threat to their jobs or private benefits continuing. Our results indicate that stronger creditor rights alone do not explain corporate leverage without taking into account efficient enforcement of these rights.

Original languageEnglish
Pages (from-to)255-274
Number of pages20
JournalJournal of Corporate Finance
Volume44
DOIs
StatePublished - Jun 1 2017

Bibliographical note

Publisher Copyright:
© 2017

Keywords

  • Capital structure
  • Judicial efficiency
  • Leverage

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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