Creditor-controlled insolvency and firm financing– Evidence from India

Shivangi Agarwal and Bhavya Singhvi

Finance Research Letters, 2023, vol. 54, issue C

Abstract: Using the ‘Insolvency and Bankruptcy Code’ (IBC) in India, we show that, despite an increase in the supply of credit, IBC led to a higher reduction in the secured debt of the high tangibility firms compared to the low tangibility firms. We also find that secured debt was substituted with other sources like equity, retained earnings, and accounts payable; more cash was held back. Our findings suggest that managers’ expected cost of bankruptcy obstructed the expected increase in supply of credit after IBC. We add to the mixed evidence on the impact of creditor rights on firm's financing decisions.

Keywords: Bankruptcy laws; Creditor rights; Leverage; Capital structure (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001861

DOI: 10.1016/j.frl.2023.103813

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