The corporate sector has taken a huge hit due to COVID-19. In the current uncertain climate then, there would be a need for a change in behaviour and policy from the top-down to thrive.

The latest research by two Professors from IIM Ahmedabad has studied a dataset from 60 countries and data from 13,000 firms to prove that a stronger insolvency and bankruptcy framework might be an answer to enhancing the credit discipline of firms and reduce their risk of future debt default. 

Indian Institute of Management - Ahemdabad
Wikimedia commons

IIM study looks at how to enhance credit discipline and reduce future debt default of firms

Two IIM professors, Prof. Balagopal Gopalakrishnan (IIM Kozhikode) and Prof. Sanket Mohapatra (IIM Ahmedabad) studied a dataset spanning 60 countries and 13,000 firms to prove stronger insolvency and bankruptcy frameworks are a must among firms to enhance credit discipline. 

The study further explores the channels through which improved creditor rights influence firms' default risk, dependence on external finance, corporate leverage and managerial ethics. The study asserts that countries with stronger insolvency regimes, the adverse effects of policy uncertainty and economic crisis can be mitigated encouraging prudency in firms. 

Even though the Insolvency and Bankruptcy Code (IBC) is suspended due to the pandemic in the country, the policy will have real implications for the sector post-COVID. Moreover since 2016 since the introduction of the IBC Indias ranking on the World Bank's Resolving Insolvency ranking has increased from 132 to 52.