Events

• Dr. Gans Narayanamoorthy
  Associate Professor of Accounting
  A.B Freeman School of Business
  Tulane University

Existing literature provides contradictory guidance regarding whether enhanced creditor rights increase or decrease bank risk-taking in lending. Unlike past studies, we directly examine their effect on expected and realized losses within the loan portfolio and find an overall negative association with lending risk. However, we do find that a particular measure of creditor protection, whether the secured creditor is paid first, has a positive association with lending risk in the pre-financial crisis period. This likely contributed to the severity of the financial crisis. While past research has largely employed an index of creditor rights, our finding of different effects across the spectrum of measures suggests caution in employing this commonly used index.