As part of the series of the „Finance Research Seminar“, VGSF welcomes Wei Wang from Queen’s University Smith School of Business to present his research paper.
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Paper
Global Insolvency and Cross-border Capital Flows
(joint with Yeejin Jang and Jenny Jihyun Tak)
Poor court coordination across bankruptcy jurisdictions creates uncertainty in the protection of debtors’ value. In this paper, we assess how such global judicial inefficiency impedes cross-border capital flows. Exploiting the introduction of Chapter 15 to the U.S. Bankruptcy Code in 2005, which facilitates coordination between U.S. and foreign courts for multinational bankruptcy proceedings, we find that foreign firms in countries with greater utilization of Chapter 15 acquired 35% more U.S. targets after the law enactment. The effect is more pronounced for firms with higher leverage and tangible assets. Foreign firms’ acquisitions of U.S. targets were facilitated by their greater use of debt financing and trade credit. Using the staggered adoption of global bankruptcy laws in 17 countries, we find an increase in inbound cross-border mergers and acquisitions following the law adoption in those countries. Overall, our results suggest that mitigating frictions that arise from global insolvency proceedings can be an important driver of cross-border investments and the growth of multinational firms.
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