Can Bankruptcy Reform Alleviate the Sticky Cost Behaviour of Firms? Evidence From India

I explore an unintended consequence of the recent Indian bankruptcy reform, the Insolvency and Bankruptcy Code, 2016 (IBC), on the sticky cost behaviour of firms. I find that while there exists stickiness among Indian firms, in general (i.e., costs increase by approximately 0.36% per 1% increase in sales. In contrast, the costs fall only by 0.19% in response to a 1% decrease in sales.), it reverses in the post-IBC regime. In addition, unconstrained and Privately Owned Business-Group firms (less reliant on external capital) are less pronounced to stickiness reversal. Such a result is interesting and may be useful for other emerging markets