Review of Financial Studies | April 2009
code under which it operates. We model investment as a choice between innovative
exploration and pursuit of tried-and-tested strategy, and financing as the choice of leverage
given the tradeoff between its tax benefits and deadweight costs in bankruptcy. Deadweight
costs in bankruptcy arise due to creditors’ preference for liquidating assets or that of debtors
in excessively continuing with assets, and their severity depends upon the nature of investment
as well as on the relative creditor-friendly or debtor-friendly nature of the bankruptcy
code. We show that under mild parametric restrictions, stronger creditor rights result in
lower value and lower leverage-based financing of innovative investments relative to triedand-
tested strategies.
K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.
As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.
His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”
Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.
