5th Apr-2023 @01:30 PM Speaker: Mr. Srijith Mohanan – Entitled “De-facto Creditor Rights, Leverage and the Indian Bankruptcy Code: A Structural Model Based Analysis”

Abstract:  

I develop a novel approach to estimating the de-facto creditor rights in an economy and use thisapproach to analyze the impact of the roll-out of the Indian Bankruptcy Code (IBC) on creditorrights in the Indian economy.  Developing on the work of Brockman and Turtle [2003], I show thatthe implied barrier levels estimated by modeling equity of the firm as a down-and-out barrier optioncan be used to analyze the level of de-facto creditor rights in the economy.  I find strong evidenceof a significant increase in de-facto creditor rights of both financial and operational creditors postthe IBC implementation.  Further, I find that the increase in creditor rights of financial creditorsis driven primarily by long-term creditors and secured creditors.I also evaluate the impact of the increase in creditor rights through the IBC roll-out on leveragelevels  in  the  Indian  economy.   I  find  that  aggregate  corporate  leverage  has  reduced  post  IBCimplementation lending support to the demand-side view that posits that firms reduce their demandfor debt in response to an increase in creditor rights (Vig [2013], Cho, El Ghoul, Guedhami, and Suh[2014]).  However, this reduction is primarily driven by long-term debt.  Usage of short-term debthas in fact increased post IBC implementation.  Further, I also show that firms have substitutedaway from secured debt to unsecured debt post IBC. Finally, the reduction in leverage levels is seenonly in case of firms with a high likelihood of financial distress.  Firms with limited risk of financialdistress  have  increased  their  leverage  levels  indicative  of  them  taking  advantage  of  an  increasedwillingness to lend among creditors in a stronger creditor rights environment (Djankov, McLiesh,and Shleifer [2007], Qian and Strahan [2007

About the Speaker:  

Srijith Mohanan is a Chief Operating Officer at the Deutsche Bank Mumbai Centre (DBCM) where his role involves developing Business Strategy, establishing Control and Governance procedures and also looking after the Recruitment, Training and Development functions. 

He completed his PhD in Finance and Accounting under Prof. V Ravi Anshuman from the Indian Institute of Management, Bengaluru in 2023. He also holds a PGDM in Management from IIM B and a BTech in Energy Engineering from IIT Kharagpur.  His area of research involves the study of Internal Capital Markets, Mutual Funds and Creditor Rights. He has authored numerous case studies, some of which have been published by the Harvard Business School.