Bankruptcy law, creditors’ rights and financing choices: Evidence from a quasi-natural experiment in India

Ranjeet Singh, Nemiraja Jadiyappa and Garima Sisodia

Applied Economics, 2021, vol. 53, issue 52, 6036-6042

Abstract: In this study, we examined the impact of changes in creditors’ rights on the financial policy of Indian firms in a quasi-natural experimental set up. Using the implementation of Insolvency and Bankruptcy Code (IBC) in 2016 as an exogenous policy shock, we investigated the changes in quantitative (leverage) and qualitative (debt maturity and debt heterogeneity) aspects of the financial policy. Overall, our findings indicated that the strengthening of creditors’ rights had a negative impact on debt ratio and debt heterogeneity and a positive impact on long-term debt maturity structure. These results were observed mainly in those firms that had a high probability of bankruptcy in the pre-implementation period.

Date: 2021
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DOI: 10.1080/00036846.2021.1934395

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