Access to Bank Credit after Emerging from Corporate Bankruptcy

Chlo Zapha

Working papers from Banque de France

Abstract: This paper identifies the bank credit restrictions that small firms face after bankruptcy. Using the French credit register, I implement a difference-in-difference strategy that exploits staggered removal of bankruptcy flags in the form of an exogenous change in credit ratings. I focus on small and medium-sized businesses between 2012 and 2019 and show that flag removal leads to an increase in bank credit of 1.7% and a 2 percentage point higher chance of forming new banking relationships. Less well-informed banks increase their credit supply after flag removal, particularly to firms whose credit rating reveals good financial performance. New banks start lending to the most constrained firms. As a result, firms substitute trade credit for bank credit and increase their investment rate. This paper supports the policy choice of shortening the bankruptcy flag.

Keywords: Corporate bankruptcy; Debt Restructuring; Credit Rating; Bank Lending Relationship; SMEs (search for similar items in EconPapers)
JEL-codes: G21 G24 G33 G34 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eec, nep-ene, nep-ent and nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:928

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