Abstract
The study exploits the variation in judicial efficiency across Indian states together with the heterogeneity in firm financing constraint and distress indicator to estimate the effect on firm investment. Using data for 2001–2013, we show that financially constrained firms registered in states with high judicial inefficiency exhibit lower investment, an effect that is exacerbated during the crisis. As well, investment is lower for distressed firms in states with high labour activism. Taken together, the evidence is consistent with the law and finance literature, and suggests that quality of contract enforcement and heterogeneity in creditor protection plays a key role in influencing firm investment.
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