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Bankruptcy law and bank financing

Author

Listed:
  • Gicoamo Rodano

    (Bank of Italy)

  • Nicolas Serrano-Velarde

    (Bocconi University)

  • Emanuele Tarantino

    (University of Mannheim)

Abstract

Exploiting the timing of the 2005-06 Italian bankruptcy law reforms, we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firms’ investment. A 2005 reform introduces procedures facilitating loan renegotiation. The 2006 reform subsequently strengthens creditor rights in liquidation. The first reform increases interest rates and reduces investment. The second reform reduces interest rates and spurs investment. Our results highlight the importance of identifying the distinct effects of liquidation and reorganization, as these procedures address differently the tension in bankruptcy law between the continuation of viable businesses and the preservation of repayment incentives.

Suggested Citation

  • Gicoamo Rodano & Nicolas Serrano-Velarde & Emanuele Tarantino, 2015. "Bankruptcy law and bank financing," Temi di discussione (Economic working papers) 1013, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1013_15
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    More about this item

    Keywords

    financial distress; financial contracting; renegotiation; multi-bank borrowing; bankruptcy courts;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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