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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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    Cited by:

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    2. Favara, Giovanni & Morellec, Erwan & Schroth, Enrique & Valta, Philip, 2017. "Debt enforcement, investment, and risk taking across countries," Journal of Financial Economics, Elsevier, vol. 123(1), pages 22-41.
    3. C. Cahn & M. Girotti & A. Landier, 2017. "Entrepreneurship and Information on Past Failures: A Natural Experiment," Working papers 644, Banque de France.
    4. Anyangah, Joshua O., 2017. "Creditor rights protection, tort claims and credit," International Review of Law and Economics, Elsevier, vol. 52(C), pages 29-43.
    5. Giacomo Rodano & Enrico Sette, 2019. "Zombie firms in Italy: a critical assessment," Questioni di Economia e Finanza (Occasional Papers) 483, Bank of Italy, Economic Research and International Relations Area.
    6. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    7. Drozd, Lukasz A. & Serrano-Padial, Ricardo, 2018. "Financial contracting with enforcement externalities," Journal of Economic Theory, Elsevier, vol. 178(C), pages 153-189.
    8. Lukasz A. Drozd & Ricardo Serrano-Padial, 2017. "Credit Enforcement Cycles," Working Papers 17-27, Federal Reserve Bank of Philadelphia.
    9. Miguel García-Posada & Raquel Vegas, 2016. "Las reformas de la Ley Concursal durante la Gran Recesión," Working Papers 1610, Banco de España;Working Papers Homepage.
    10. Gopalakrishnan, Balagopal & Mohapatra, Sanket, 2020. "Insolvency regimes and firms' default risk under economic uncertainty and shocks," Economic Modelling, Elsevier, vol. 91(C), pages 180-197.
    11. Fabio Schiantarelli & Massimiliano Stacchini & Philip E. Strahan, 2020. "Bank Quality, Judicial Efficiency, and Loan Repayment Delays in Italy," Journal of Finance, American Finance Association, vol. 75(4), pages 2139-2178, August.
    12. Fotak, Veljko & Lee, Haekwon & Megginson, William, 2019. "A BIT of investor protection: How Bilateral Investment Treaties impact the terms of syndicated loans," Journal of Banking & Finance, Elsevier, vol. 102(C), pages 138-155.
    13. Pezone, Vincenzo, 2020. "The real effects of judicial enforcement," SAFE Working Paper Series 192, Leibniz Institute for Financial Research SAFE.
    14. Vikas Mehrotra & Randall Morck, 2017. "Governance and Stakeholders," NBER Working Papers 23460, National Bureau of Economic Research, Inc.
    15. Tatsiana Kliatskova & Loïc Baptiste Savatier, 2019. "Insolvency Regimes and Economic Outcomes," DIW Roundup: Politik im Fokus 133, DIW Berlin, German Institute for Economic Research.
    16. Erwan Morellec & Boris Nikolov & Norman Schürhoff, 2018. "Agency Conflicts around the World," Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4232-4287.
    17. Anurag K. Agarwal & Abhiman Das & Joshy Jacob & Sanket Mohapatra, 2020. "Introduction to the Special Issue on ‘Financial Distress, Bankruptcy, and Corporate Finance’," Vikalpa: The Journal for Decision Makers, , vol. 45(2), pages 61-68, June.
    18. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    19. Cerqueiro, Geraldo & Ongena, Steven & Roszbach, Kasper, 2020. "Collateral damaged? Priority structure, credit supply, and firm performance," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    20. José Garrido & Emanuel Kopp & Anke Weber, 2016. "Cleaning-up Bank Balance Sheets; Economic, Legal, and Supervisory Measures for Italy," IMF Working Papers 2016/135, International Monetary Fund.
    21. Matteo Bugamelli & Francesca Lotti & Monica Amici & Emanuela Ciapanna & Fabrizio Colonna & Francesco D’Amuri & Silvia Giacomelli & Andrea Linarello & Francesco Manaresi & Giuliana Palumbo & Filippo Sc, 2018. "Productivity growth in Italy: a tale of a slow-motion change," Questioni di Economia e Finanza (Occasional Papers) 422, Bank of Italy, Economic Research and International Relations Area.
    22. Stef, Nicolae & Dimelis, Sophia, 2020. "Bankruptcy regime and the banking system," Economic Modelling, Elsevier, vol. 87(C), pages 480-495.
    23. Schain, Jan Philip & Stiebale, Joel, 2016. "Innovation, institutional ownership, and financial constraints," DICE Discussion Papers 219, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    24. García-Posada Gómez, Miguel & Vegas Sánchez, Raquel, 2018. "Bankruptcy reforms in the midst of the Great Recession: The Spanish experience," International Review of Law and Economics, Elsevier, vol. 55(C), pages 71-95.
    25. Tatsiana Kliatskova & Loïc Baptiste Savatier, 2020. "Insolvency Regimes and Cross-Border Investment Decisions," Discussion Papers of DIW Berlin 1862, DIW Berlin, German Institute for Economic Research.

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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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