The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Sat, 22 Aug 2026 11:30:59 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.10 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Creditor Rights and Corporate Risk-Taking – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Creditor Rights and Corporate Risk-Taking https://corpgov.law.harvard.edu/2010/01/04/creditor-rights-and-corporate-risk-taking/?utm_source=rss&utm_medium=rss&utm_campaign=creditor-rights-and-corporate-risk-taking https://corpgov.law.harvard.edu/2010/01/04/creditor-rights-and-corporate-risk-taking/#comments Mon, 04 Jan 2010 14:31:34 +0000 http://blogs.law.harvard.edu/corpgov/?p=6402?d=20150106105755EST Posted by Jim Naughton, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday, January 4, 2010
Editor's Note:

This post comes to us from Viral Acharya, Professor of Finance at New York University, Yakov Amihud, Professor of Finance at New York University, and Lubomir Litov, Assistant Professor of Finance at Washington University in St. Louis.

In a recent working paper Creditor Rights and Corporate Risk-Taking, we study the effect of creditor rights in bankruptcy on corporate risk-taking. In particular, we ask: What effect does the strength of creditor rights have on firms’ investment decisions? In other words, while a harsh penalty in default reduces fraud and opportunistic behavior by debtors, might it also inhibit entrepreneurial, bona-fide risky investment?

Our empirical analysis uses as an explanatory variable the variation of creditor rights across countries in their bankruptcy codes, documented by La Porta et al. (1998), which are largely a function of the country’s legal origin and exogenous to the nature of the country’s overall corporate investments. We employ several different measures of corporate risk-taking and examine their relationship to creditor rights across countries and over time.

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