We argue that when bankruptcy code is creditor friendly, excessive liquidations cause levered firms to shun innovation, whereas by promoting continuation upon failure, a debtor-friendly code induces greater innovation. We provide empirical support for this claim by employing patents as a proxy...

Strategic default by firms remains a global concern. Although the theoretical literature studies this phenomenon, empirical evidence is scant as data categorizing defaults as strategic or distress-driven is unavailable. We use unique data from India to investigate how firms that strategically...