This paper investigates the effect of reforms of insolvency regulations on cross-border debt and equity investments at a sectoral level. Using disaggregated data from the Securities Holdings Statistics by Sector (SHSS) and OECD-indicators on the efficiency of insolvency regulations, we ﬁnd that investors prefer to invest more in countries with more efficient insolvency frameworks. The effect, however, differs across sectors, with households and institutional investors being particularly sensitive. In addition, share-holders are mostly responsive to prevention and streamlining tools, while debt-holders respond more to availability of restructuring tools. Finally, we show that countries with developed ﬁnancial markets and effective government are the ones that see the largest debt and equity inﬂows after reforms of insolvency regulations.
Keywords: Capital market integration, insolvency law, sectoral effects