Vintage Capital and Credit Protection

The fall’s inaugural Seminar in Law, Economics, and Organization this week featured a presentation by Efraim Benmelech on Vintage Capital and Credit Protection, a recent paper coauthored with Nittai Bergman.  The paper uses an extensive dataset on the age of aircraft around the world to assess whether creditor protections are linked with increased investment in newer technologies by commercial airlines.  The Abstract explains:

We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry.  Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage as well as firms with larger aircraft fleets.  Moreover, we find that more profitable airlines, airlines with lower leverage ratios, and airlines with less debt overhang are less sensitive to prevailing creditor rights in their country.  We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies, and foster productivity.

The full study is available for download here.

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