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From distress to flexibility: A quasi-natural evidence from creditors’ rights reform

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  • Kumar, Satish
  • Chaturvedula, Chakrapani
  • Rastogi, Nikhil

Abstract

This study examines the causal effect of the Insolvency and Bankruptcy Code (IBC) of 2016 on the financial flexibility of distressed firms using a difference-in-differences (DiD) framework in the Indian context. The results show that distressed firms experienced a significant improvement in financial flexibility compared to non-distressed firms after the IBC. Such effect is primarily driven by enhanced access to credit, manifested in increased leverage and reduced borrowing costs, rather than precautionary motive. Placebo and PSM-DiD tests validate the robustness of the causal inference, highlighting the IBC’s effectiveness as a structural credit market reform.

Suggested Citation

  • Kumar, Satish & Chaturvedula, Chakrapani & Rastogi, Nikhil, 2025. "From distress to flexibility: A quasi-natural evidence from creditors’ rights reform," Finance Research Letters, Elsevier, vol. 86(PD).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pd:s1544612325018860
    DOI: 10.1016/j.frl.2025.108632
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