Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?

Using the staggered introduction of fast-track debt recovery courts in India, we estimate the causal effect of a reduction in debt contract enforcement costs on financing and asset maturity. A reduction in enforcement costs is associated with an increase in long-term debt and a decrease in short-term debt and trade-credit. The increase in debt maturity is confined to firms that borrow from multiple lenders, have abnormally short debt maturity structures before the reform, and to smaller firms. Firms also reduce the number of banking relationships, and increase the proportion of long-term assets after the reform. Our results highlight an important causal effect of debt contract enforcement costs on firm financing and investment