Globally Consistent Creditor Protection, Reallocation, and Productivity

Finance

Speaker : Bo Bian

Buil. T - Room T104 

This paper documents that resource reallocation across firms is an important mechanism through which creditor rights affect real outcomes. I exploit the staggered adoption of an international convention that provides globally consistent strong creditor protection for aircraft finance. I find that country-level productivity in the aviation sector, proxied by average monthly flying hours per aircraft, increases by 12% following the adoption of the Convention. Across-firm reallocation accounts for most of the productivity increase. Productive firms borrow more, expand, and adopt new technology at the expense of unproductive ones. Such reallocation is facilitated by (i) easier and quicker asset redeployment; and (ii) the influx of foreign financiers offering innovative financial products to improve credit allocative efficiency. I further document an increase in competition and an improvement in the breadth and the quality of products available to consumers.

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