When creditor-friendly systems embrace debtor tools: the impact of the UK insolvency reform on firm’s borrowing costs
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2025-06-25
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Moura, André Aroldo Freitas de
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This study investigates the impact of the United Kingdom’s 2020–2021 insolvency reform on the borrowing costs of financially distressed firms. Traditionally considered a creditor-friendly jurisdiction, the UK introduced a series of debtor-oriented legal tools. Drawing from a sample of 1,417 distressed firms across various sizes and industries, annual financial data was extracted from the Orbis database for the period of 2018–2023. To estimate the causal effect of the reform, a Grouped Difference-in-Differences approach was applied, comparing the borrowing costs of firms exposed to the new legal framework with those whose distress occurred prior to its implementation. The findings of this research indicate a statistically significant reduction in borrowing costs among treated firms, suggesting that the specific configuration of the UK’s new insolvency regime may have enhanced creditor confidence despite its debtor-friendly features. This contributes to the broader understanding of how legal design affects financial outcomes and highlights the role of legal institutions as a complement to economic policy.