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Debt restructuring and the role of lending technologies

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  • Giacinto Micucci

    ()
    (Bank of Italy)

  • Paola Rossi

    ()
    (Bank of Italy)

Abstract

The literature on debt restructuring usually assumes that banks behave in a uniform way towards firms in distress. Using a recent survey of Italian banks, we show that banks follow different strategies when they decide whether to take part in the workout process, in that some of them do restructure their debt claims towards small and medium-sized enterprises in distress, while others do not. We explain this heterogeneity by considering the role of banksÂ’ internal organization and lending technologies, which the literature has shown to be strictly tied to the type of relationship developed with the borrower (transactional versus relationship lending). We find that the probability of debt restructuring is higher when the bank: i) is geographically closer to borrowing firms; ii) relies more on soft than hard information; and iii) adopts a decentralized structure with more power allocated to local managers. However there are important complementarities among organizational variables: the adoption of credit scoring increases the likelihood of restructuring if banks also use these techniques systematically in the monitoring process and if they adopt more decentralized structures. Bank size per se is not able to fully explain this heterogeneous behaviour, as organizational forms and lending technologies may also have important consequences on bank decisions.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 763.

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Date of creation: Jun 2010
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Handle: RePEc:bdi:wptemi:td_763_10

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Keywords: financial distress; debt restructuring; small and medium-sized enterprises (SMEs); bank heterogeneity; bank organization; lending technologies.;

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Citations

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Cited by:
  1. Djedidi-Kooli, Salima, 2009. "L’accès au financement des PME en France : quel rôle joué par la structure du système bancaire ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8354 edited by Etner, François, September.
  2. Tlili, Rim, 2012. "Comment justifier la multibancarité au sein des PME ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10919 edited by Etner, François, September.
  3. Andrea Filippo Presbitero & Alberto Zazzaro, 2009. "Competition and Relationship Lending: Friends or Foes?," Mo.Fi.R. Working Papers 13, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  4. Zeno Rotondi, 2013. "Relationship banking and organizational models: a new structure for UniCredit Group in Italy," BANCARIA, Bancaria Editrice, vol. 4, pages 15-23, April.
  5. Enrico Beretta & Silvia Del Prete, 2013. "Banking consolidation and bank-firm credit relationships: the role of geographical features and relationship characteristics," Temi di discussione (Economic working papers) 901, Bank of Italy, Economic Research and International Relations Area.
  6. Andrea F. Presbitero & Gregory F. Udell & Alberto Zazzaro, 2014. "The Home Bias and the Credit Crunch: A Regional Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 53-85, 02.

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