Strengthening secured creditors: Implications on debt financing and investment

This paper investigates the effects of a comprehensive insolvency regulation reform in Colombia, focusing on strengthening secured creditor rights, expanding the collateral menu, and establishing a national collateral registry. Leveraging a difference-in-difference design, the study examines the impact on firms with varying levels of movable assets. The reform significantly increased debt usage for firms with high movable assets, indicating a positive effect on financing. The national collateral registry played a pivotal role, benefiting firms in less financially developed regions. Furthermore, the analysis reveals nuanced interactions between the reform, firm size, and movable assets, suggesting differential effects on large and small enterprises. The study extends the Law and Finance literature, offering firm-level insights into the intricate dynamics between institutional changes and access to debt financing.