Essays on creditor rights and bankruptcy

Guide(s)

Jayadev, M

Department

Finance and Accounting

Area

Finance and Accounting

University

Indian Institute of Management Bangalore

Place

Bangalore

Publication Date

3-31-2026

Year Awarded

March 2026

Year Completed

March 2026

Year Registered

June 2019

Abstract

In this thesis, I examine the impact of strengthening creditor rights on the supply of tradecredit and ownership preferences of domestic institutional investors. Furthermore, I alsoexplore the role of governance in mitigating the risk of strategic defaults. In the firstessay, I exploit the implementation of two legal interventions in India that exogenouslystrengthened the rights of suppliers in a heterogeneous manner, viz., Micro, Small, andMedium Enterprises Development Act 2006 (MSMED) and Insolvency and BankruptcyCode 2016 (IBC), to examine whether changes in creditor rights affect the supply of tradecredit. Using a difference-in-differences (DiD) design, I find that targeted legal protectionto small suppliers with weaker bargaining power through MSMED helps them improvetheir working capital cycle and profitability, relative to other suppliers. The absence ofvoting rights for suppliers in the insolvency resolution process under IBC, however, likelydilutes the protection for small suppliers provided under MSMED. Consistent with thisargument, I find that small firms supply higher trade credit and have lower profitabilitycompared to other suppliers post the implementation of IBC. I conclude that targetedlegal protection helps firms with low bargaining power maintain their competitivenessin the market. In the second essay, I investigate the response of domestic institutionalinvestors (DIIs) to the strengthening of creditor rights through IBC. Using a DiD design,I show that DIIs reduce their ownership in financially distressed firms (treated firms)following the reform, relative to non-distressed ones (control firms). The evidence suggests that the liquidation bias and agency issues under a creditor-friendly bankruptcyregime prompt DIIs to shift their holdings away from financially distressed firms. Thiseffect is driven by ‘riskier firms’, i.e., firms with lower founder ownership, lower assettangibility, and business group affiliation. These results highlight the importance of legalprovisions and incentive alignment in mitigating principal-agent conflicts. In the thirdessay, I empirically investigate the role of firm-level governance in mitigating strategicdefaults. Using a time-dependent Cox-Hazard model, I find that listed firms, businessgroup-affiliated firms, firms with higher ownership by founders and institutional investors,and firms with single-banking relationships are less likely to be strategic defaulters. Thefindings emphasise the importance of robust governance mechanisms within firms to mitigate the risk of moral hazard associated with corporate defaults.

Pagination

x, 151p.

Copyright

Indian Institute of Management Bangalore

Document Type

Dissertation

DAC Chairperson

Jayadev, M

DAC Members

Jindal, Varun; Kalubandi, Sai Chittaranjan

Type of Degree

Ph.D.

Relation

DIS-IIMB-FPM-P26-04

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