Access to Collateral and Corporate Debt Structure: Evidence from a Natural Experiment

  • Author(s): VIKRANT VIG
  • Published: May 20, 2013
  • Pages: 881-928
  • DOI: 10.1111/jofi.12020


We investigate how firms respond to strengthening of creditor rights by examining their financial decisions following a securitization reform in India. We find that the reform led to a reduction in secured debt, total debt, debt maturity, and asset growth, and an increase in liquidity hoarding by firms. Moreover, the effects are more pronounced for firms that have a higher proportion of tangible assets because these firms are more affected by the secured transactions law. These results suggest that strengthening of creditor rights introduces a liquidation bias and documents how firms alter their debt structures to contract around it.

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