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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.

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  • Christa Hainz, 2005. "Effects of bank insolvency on corporate incentives in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 261-286, April.
    • Handle: RePEc:bla:etrans:v:13:y:2005:i:2:p:261-286
    DOI: 10.1111/j.1468-0351.2005.00219.x
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    References listed on IDEAS

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    2. Degryse, H.A. & Havrylchyk, O. & Jurzyk, E. & Kozak, S., 2009. "Foreign Bank Entry and Credit Allocation in Emerging Markets," Other publications TiSEM fa54a876-1262-44c9-8099-7, Tilburg University, School of Economics and Management.
    3. 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.
    4. 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.
    5. Kristi Marinova, 2018. "Bank Insolvency – Regulatory Challenges And Empirical Evidence," Economic Archive, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 2 Year 20, pages 58-67.

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