Law and Finance During Crises

Abstract

Using a unique data set composed of over 31,000 firms in 46 countries, we investigate the influence of laws regulating disclosure and liability on firms’ access to capital during financial crises. We find that G10 firms operating in countries with highly developed financial enforcement institutions are impervious to sovereign financial distress when accessing external capital to finance their growth. Firms originating from G10 countries with weaker enforcement regimes issue less capital during periods of elevated sovereign distress. Firms operating in non-G10 countries also decrease their issuance of equity and debt securities in response to financial distress experienced by their governments, however the negative impact on issuance is mitigated by strong enforcement mechanisms for disclosure and liability.