This paper studies whether strengthening creditor rights improves the allocation of capital toward productive exporting firms. I examine India’s Insolvency and Bankruptcy Code (IBC) of 2016, which introduced a time-bound insolvency resolution framework and strengthened creditor control. Using firm-level data from CMIE Prowess and a difference-in-differences design, I test whether the reform relaxed financing constraints for firms with high marginal returns to capital (MRPK). I find that following the IBC, high-MRPK exporting firms experience a significant increase in export intensity, investment, and long-term domestic borrowing relative to other firms. In contrast, foreign borrowing remains unchanged, suggesting that the reform primarily improved access to domestic credit markets. The findings imply that
stronger insolvency institutions can improve allocative efficiency by channeling capital toward productive but financially constrained firms. More broadly, the paper highlights the role of creditor rights in shaping export performance and resource allocation in emerging economies.
