Does Greater Creditor Protection Affect Firm Borrowings? Evidence from IBC

Jibin Jose, Snehal S. Herwadkar, Prabal Bilantu and Shihas Abdul Razak
Additional contact information
Jibin Jose: Jibin Jose (corresponding author) is with the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India.
Snehal S. Herwadkar: Snehal S. Herwadkar is with the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India, e-mail: snehal@rbi.org.in.
Prabal Bilantu: Prabal Bilantu is with the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India, e-mail: prabalbilantu@rbi.org.in.
Shihas Abdul Razak: Shihas Abdul Razak was Research Intern at the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India, e-mail: shihaspvkd@gmail.com.

Margin: The Journal of Applied Economic Research, 2020, vol. 14, issue 2, 212-225

Abstract: The Insolvency and Bankruptcy Code (IBC) in India ushered in a new era of creditor-in-control regime with an in-built mechanism for time-bound resolution. This article examines the impact of the Code on firm borrowings and cost of funds. Using firm-level data on 4,531 firms for the period 2012–2018, we find that implementation of IBC has had many desirable consequences from a policy perspective. It helped in deleveraging of firms as their reliance on borrowings—whether long-term or short-term—declined. Further analysis suggests that this is especially true for weak and large firms. The stronger creditor protection is, thus, a step in the direction of reducing the burden on banks and further market deepening. JEL Classification: G32, G33, G38, D22, O16

Keywords: Bankruptcy; Firm Borrowings; Creditor Protection; Government Policy; Corporate Finance; IBC (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:mareco:v:14:y:2020:i:2:p:212-225

DOI: 10.1177/0973801020904484

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