Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323947 
Year of Publication: 
2025
Series/Report no.: 
BOFIT Discussion Papers No. 6/2025
Publisher: 
Bank of Finland, Bank of Finland Institute for Emerging Economies (BOFIT), Helsinki
Abstract: 
The paper investigates the influence of creditor rights reforms on leverage. Based on a partial equilibrium agency cost model, we propose a novel channel running from the owner/manager's private bankruptcy costs to leverage. Such costs mitigate the firms' agency problem toward creditors, thereby increasing credit limits and leverage. The proposition is tested with data from India 2011-2020, a period that saw the strengthening of creditor rights. We find that the reform caused leverage to fall, which is indicative of a decrease in owner/manager's bankruptcy costs. We also find evidence of a decline in credit limits as predicted by the proposed theory.
Subjects: 
Creditor rights
Leverage
Indian economy
Insolvency and bankruptcy code
JEL: 
C21
D22
G33
K35
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.