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Effects of bank insolvency on corporate incentives in transition economies

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  • Christa Hainz

Abstract

In transition countries, the real impact of banking crises has so far been rather moderate. We study the effect of bank insolvency on corporate incentives in a model where incumbent banks possess an informational advantage. We find that bank insolvency reduces the incentive to restructure for firms whose incumbent bank becomes insolvent. However, bank insolvency provides an additional incentive for firms that enter the credit market to develop new projects because it reduces asymmetric information between banks. Firms' credit costs are thereby lowered. We also explain a path-dependent development by demonstrating that the firms' decision to develop new projects depends on the banks' share of non-performing loans. Copyright (c) 2005 The European Bank for Reconstruction and Development.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal The Economics of Transition.

Volume (Year): 13 (2005)
Issue (Month): 2 (04)
Pages: 261-286

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Handle: RePEc:bla:etrans:v:13:y:2005:i:2:p:261-286

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Cited by:
  1. Snezana Popovčić-Avrić & Vule Mizdraković & Marina Đenić, 2013. "Analysis of Financial Structure of the Serbian Banking Sector: Impact of the Financial Crisis," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(2), pages 81-92.
  2. Degryse, Hans & Havrylchyk, Olena & Jurzyk, Emilia & Kozak, Sylwester, 2012. "Foreign bank entry, credit allocation and lending rates in emerging markets: Empirical evidence from Poland," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2949-2959.
  3. Degryse, H.A. & Havrylchyk, O. & Jurzyk, E. & Kozak, S., 2009. "Foreign Bank Entry and Credit Allocation in Emerging Markets," Discussion Paper 2009-044, Tilburg University, Tilburg Law and Economic Center.
  4. repec:cbk:journl:v:2:y:2013:i:1:p:81-92 is not listed on IDEAS

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