Creditor protection, shareholder protection and investment efficiency: New evidence

Abstract

Prior studies show significant effects of creditor rights and shareholder rights on corporate investment efficiency; however, they have not addressed how shareholder (creditor) rights influence the relationship between creditor (shareholder) rights and firm investment efficiency. With a research sample of 235,969 firm-years from 31,152 firms across 42 countries during the period 2002–2016, we find that the negative (positive) effect of creditor (shareholder) rights on corporate investment efficiency is stronger (weaker) in countries of strong shareholder (creditor) protection. In addition, our research findings show that both creditor rights and shareholder rights are less effective in investment efficiency during the global financial crisis. Firms in countries of strong shareholder (creditor) protection experience smaller (larger) decreases in the effectiveness of creditor (shareholder) rights.