Insolvency regimes and cross-border investment decisions

•The paper investigates the effect of reforms of insolvency regulations on cross-border debt and equity positions.•Investors prefer to invest more in countries with more efficient insolvency frameworks.•The effect differs across sectors, with institutional investors’ investment in equity and banks’ investment in debt driving the results.•Shareholders are mostly responsive to prevention and streamlining tools, while debt-holders respond more to availability of restructuring tools.•Countries with developed financial markets and effective government are the ones that see the largest debt and equity inflows after reforms of insolvency regulations.•These findings have important policy implications for capital market integration in Europe, justifying setting up of minimum standards for insolvency procedures across the EU Member States.