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Does Greater Creditor Protection Affect Firm Borrowings? Evidence from IBC

Author

Listed:
  • 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.)

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

Suggested Citation

  • Jibin Jose & Snehal S. Herwadkar & Prabal Bilantu & Shihas Abdul Razak, 2020. "Does Greater Creditor Protection Affect Firm Borrowings? Evidence from IBC," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(2), pages 212-225, May.
    • Handle: RePEc:sae:mareco:v:14:y:2020:i:2:p:212-225
    DOI: 10.1177/0973801020904484
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    References listed on IDEAS

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    Cited by:

    1. Agarwal, Shivangi & Singhvi, Bhavya, 2023. "Creditor-controlled insolvency and firm financing– Evidence from India," Finance Research Letters, Elsevier, vol. 54(C).
    2. Bose, Udichibarna & Filomeni, Stefano & Mallick, Sushanta, 2021. "Does bankruptcy law improve the fate of distressed firms? The role of credit channels," Journal of Corporate Finance, Elsevier, vol. 68(C).
    3. Amol Baxi, 2023. "Interim Finance in Creditor-Oriented Bankruptcy Codes: A Study in the Context of Insolvency & Bankruptcy Code, India," Vikalpa: The Journal for Decision Makers, , vol. 48(3), pages 189-205, September.

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    More about this item

    Keywords

    Bankruptcy; Firm Borrowings; Creditor Protection; Government Policy; Corporate Finance; IBC;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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