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Title:Creditor rights, entrepreneurship, and productivity
Author(s):Ersahin, Nuri
Director of Research:Irani, Rustom M.
Doctoral Committee Chair(s):Irani, Rustom M.
Doctoral Committee Member(s):Almeida, Heitor; Weisbenner, Scott; Xuan, Yuhai
Department / Program:Finance
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Creditor Rights, Law and Finance, Bankruptcy, Entrepreneurship, Productivity
Abstract:The first essay, Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law, examines entrepreneurship following the adoption of modern-day fraudulent transfer laws in the United States. These laws remove the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. They are particularly important for entrepreneurs whose personal assets are often commingled with those of the firm. Using establishment-level data from the U.S. Census Bureau, I document declines in startup entry, churning among entrants, and closures of existing ventures after the passage of these laws. Thus, strengthening creditor rights can impede entrepreneurial activity and the process of reallocating capital from failing to new businesses. In the second essay, Creditor Rights, Technology Adoption, and Productivity: Plant-Level Evidence, I analyze the impact of stronger creditor rights on productivity using plant-level data from the U.S. Census Bureau. Following the adoption of anti-recharacterization laws that give lenders greater access to the collateral of firms in financial distress, total factor productivity of treated plants increases by 2.6 percent. This effect is mainly observed among plants belonging to financially constrained firms. Furthermore, treated plants invest in capital of younger vintage and newer technology, and become more capital-intensive. My results suggest that stronger creditor rights relax borrowing constraints and help firms adopt more efficient production technologies. The third essay, Creditor Control Rights and Resource Allocation within Firms, examines the within-firm resource allocation and restructuring outcomes at firms violating debt covenants. We use establishment-level data from the U.S. Census Bureau to demonstrate that covenant violations are followed by reductions in employment, investment, and more frequent establishment closures among violating firms' noncore business lines and underperforming establishments. These changes are pronounced when key lenders have prior industry experience. Thus, refocusing operations and improving productive efficiency via resource reallocation are important channels through which enhanced creditor rights can facilitate the turnaround of firms in technical default.
Issue Date:2018-04-09
Rights Information:Copyright Nuri Ersahin 2018
Date Available in IDEALS:2018-09-04
Date Deposited:2018-05

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