The 55th Frontier Forum for Digital Technology and Finance

Abstract：

International business research has long examined how legal institutions shape corporate strategy, yet it often emphasizes statutory (de jure) rules rather than their practical application. We extend this literature by investigating de facto debt enforcement, the effectiveness of “law in action,” as a critical determinant of corporate debt structure. Using a dataset of firms from 57 countries over the 2001–2024 period, we find that stronger enforcement is associated with lower debt concentration. This association is concentrated in developing and emerging economies and is statistically indistinguishable from zero in advanced economies, consistent with enforcement being a binding constraint in institutional voids. Mechanism tests suggest two channels: enforcement increases the pledgeability of tangible assets and the use of secured debt, and it improves access to cross-border syndicated lending by increasing the likelihood of a foreign lead bank. To mitigate endogeneity concerns, we exploit the 2005 Brazilian bankruptcy reform as a quasi-natural experiment, confirming that a negative shock to enforcement leads to increased debt concentration. Overall, the findings underscore that de facto enforcement, beyond de jure rules, is a binding institutional constraint on corporate financing, particularly in emerging economies.

Speaker Introduction：

Dr. Hai Zhang is currently an Associate Professor and PhD Supervisor in the Department of Accounting and Finance at the University of Strathclyde Business School (a top 10 business school in the UK). He obtained his PhD in Quantitative Finance from the University of Glasgow, with his doctoral research fully funded by the Economic and Social Research Council (ESRC). During his PhD studies, he was awarded a scholarship to become a Visiting Scholar at Columbia University in the United States. Dr. Zhang's main research areas include innovations in incomplete financial markets and their impact on the investment and financing of Small and Medium-sized Enterprises (SMEs). His principal research findings have been published in leading international finance and economics journals, such as Economic Research Journal, Journal of Corporate Finance, European Journal of Operational Research, Journal of Economic Dynamics and Control, The European Journal of Finance, and European Financial Management, among others.