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Borrowing from government owned banks & firm's liquidation risk

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  • Kariya, Ankitkumar

Abstract

Government Owned Banks (GOBs) have other explicit or implicit objectives apart from profit maximization. In this paper, I study whether this affects the liquidation risk of firms borrowing from GOBs. Using the natural experiment of securitization reform in India that increased firms' liquidation risk, I find that the firms borrowing exclusively from GOBs did less reduction in secured debt usage compared to other firms. In the cross-section, the effect is more substantial in the subsample of firms that are more likely to face financial distress. These results suggest that borrowing from GOBs have less liquidation risk.

Suggested Citation

  • Kariya, Ankitkumar, 2021. "Borrowing from government owned banks & firm's liquidation risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001036
    DOI: 10.1016/j.jcorpfin.2021.101982
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