Do Creditor Rights Reduce Tunneling? Evidence From India’s Bankruptcy Law Reforms

Gautham Udupa, Prasanna Gai, Akshat Singh and Asha Sundaram
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Prasanna Gai: University of Auckland
Akshat Singh: International Monetary Fund

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: We study the impact of a bankruptcy reform that improved creditor rights and legal efficiency on the tunnelling of funds through related party transactions within corporate group in India. We exploit a triple difference estimation strategy comparing related party transactions between a ‘treatment’ and ‘control’ group of financially distressed firms, before and after reform, and in Indian states where court systems were less efficient relative to other states. Improved creditor rights reduced tunnelling by inducing borrowers to willingly cut back on bank debt, financial related party transactions, and dividend payouts.

Keywords: Tunneling; bankruptcy reform; creditor rights; corporate governance. (search for similar items in EconPapers)
JEL-codes: G21 G33 G38 K22 O16 (search for similar items in EconPapers)
Pages: 32
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022259

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