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What happens after corporate default? Stylized facts on access to credit

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  • Bonfim, Diana
  • Dias, Daniel A.
  • Richmond, Christine

Abstract

In this paper, we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of corporate default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the corporate default episodes last 5 quarters. Most firms continue to have access to credit immediately after resolving default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and experience longer and more severe defaults.

Suggested Citation

  • Bonfim, Diana & Dias, Daniel A. & Richmond, Christine, 2012. "What happens after corporate default? Stylized facts on access to credit," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2007-2025.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:7:p:2007-2025
    DOI: 10.1016/j.jbankfin.2012.03.007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vanda Almeida & Gabriela Lopes de Castro & Ricardo Mourinho Félix & Paulo Júlio & José R. Maria, 2013. "Inside PESSOA - A Detailed Description of the Model," Working Papers w201316, Banco de Portugal, Economics and Research Department.
    2. Betz, Jennifer & Kellner, Ralf & Rösch, Daniel, 2016. "What drives the time to resolution of defaulted bank loans?," Finance Research Letters, Elsevier, vol. 18(C), pages 7-31.
    3. Paulo Júlio & Ricardo Mourinho Félix & Gabriela Lopes de Castro & José R. Maria, 2015. "Financial Fragmentation Shocks," Working Papers w201508, Banco de Portugal, Economics and Research Department.
    4. Hussain, Inayat & Durand, Robert B. & Harris, Mark N., 2016. "Default resolution and access to fresh credit in an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 256-274.
    5. Hering, Imke & Mußhoff, Oliver, 2016. "Loan Defaults In Microfinance - Forewarned Is Forearmed," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244780, German Association of Agricultural Economists (GEWISOLA).
    6. Han, Chulwoo & Jang, Youngmin, 2013. "Effects of debt collection practices on loss given default," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 21-31.

    More about this item

    Keywords

    Loan default; Firm access to credit; Duration analysis;

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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