Does Reform on Security Interest System Affect Firms’ Debt Financing?
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| Title | Does Reform on Security Interest System Affect Firms’ Debt Financing?
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| Author | Qian Xuesong and Fang Sheng |
| Organization | Huazhong University of Science and Technology |
| Email | qianxuesong2008@163.com；fangs13@126.com |
| Key Words | Property Law; Security Interest System; Trade Credit; Long-term Liabilities; Difference in Difference Method |
| Abstract | This paper considers how firms’ debt finance responds to the Security Interest reform which is exogenously induced by the Property Law enactment in China 2007. By using difference-in-difference method, we find that this legal reform led to a significant increase in firms’ current liabilities and total liabilities, and these effects are more pronounced for firms that have a lower proportion of tangible assets because these firms are more affected by the security interest reform. Moreover, we find two mechanisms through which the law impacts debt finance. First, the Property Law increased the firms’ trade credit sharply, rather than short-term loan. Second, the Property Law has had a lagged positive effect on long-term liabilities. These results contribute to the understanding of “Law and Finance” relationship in the developing countries like China. |
| Serial Number | WP1040 |
| Time | 2016-03-22 |
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