Abstract
I analyze the effect of stronger creditor rights on productivity, using U.S. Census microdata. 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 concentrated among plants belonging to financially constrained firms. I explore the underlying mechanism and find that treated plants change the composition of their investments and their workforce toward newer capital and skilled labor. My results suggest that stronger creditor rights relax borrowing constraints and help firms adopt production technologies that are more efficient.
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