Influence of bankruptcy laws on firms debt finance A qualitative study with implications for law and finance and IBC India

Abstract

In this thesis, through a series of studies, I focus on bankruptcy laws (with a special focus on the Insolvency and Bankruptcy Code of India, 2016 [IBC]) and their effects on firms debt finance (demand side). The law and finance literature dealing with bankruptcy laws, creditor rights, and their impact on credit markets has been vibrant since the 1990s. The development of credit markets is one of the important and recognized objectives of bankruptcy laws (including IBC). However, despite active and vibrant research, less is understood about the mechanisms of impact (especially ex-ante) of bankruptcy laws on firms, traditionally assumed to be through the medium of creditor rights (represented by varying indicators in empirical research). Acknowledging that the impact of bankruptcy laws on credit markets and stakeholders has a behavioural element, this thesis primarily deploys qualitative methodology (a neglected methodology in law and finance) to examine the mechanisms of the effect of bankruptcy laws on firms, while also using Leximetrics (quantitative coding of the law on multiple indices to analyze IBC s creditor orientation) and integrating direct perceptions of the law (to identify channels of effect). This thesis also examines other debt finance dimensions in bankruptcy and other channels of ex-ante effects of bankruptcy on firms (Human capital), both crucial for the effective functioning of the bankruptcy code, value preservation, and successful emergence of firms from bankruptcy (ex-post outcomes). Primarily focusing on the firms side of law and finance, this thesis fills several gaps in this domain and contributes towards meeting calls for more qualitative methodology in law and finance, develops fresh conceptual frameworks and perspectives, integrates stakeholder perceptions in research, identifies dimensions of bankruptcy law that matter, offers normative suggestions and sheds further light on the How of the law and finance question with managerial, policy and research implications.