Estimating the Impact of the Bankruptcy and Insolvency Act on Debt Limits and Debt Capacity of Nigerian Firms with Supporting Evidence from Kenya and Ghana

ABSTRACT This study investigates empirically the influence of the bankruptcy and insolvency law reform on the debt limits and the remaining debt capacity of listed manufacturing firms in Nigeria. A reformed bill was first presented in 2016, and in essence approved in 2020. The theoretical prediction that creditor rights influence corporate debt limits, or the influence of creditor rights on the remaining debt capacity, has not previously been tested. The estimations build on a stochastic frontier analysis of firm balance sheets. The analysis does not reveal any notable announcement effects or implementation effects of the reform on the firms’ debt limits. A minor fall in the remaining debt capacity of firms is found in 2020 and 2021, indicating a possible implementation effect from the reform. The debt limits of Nigerian firms remain quite high, at close to 100% of their total assets.