Creditor rights, entrepreneurship, and productivity

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.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Finance

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2018

Author dc:creator

• Ersahin, Nuri

Contributors dc:contributor

• Irani, Rustom M.
• Almeida, Heitor
• Weisbenner, Scott
• Xuan, Yuhai

• Creditor Rights, Law and Finance, Bankruptcy, Entrepreneurship, Productivity

Statement dc:rights

• Copyright Nuri Ersahin 2018

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/100937

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/100937