Quo Vadis? Bank Closures, Firm Performance, and New Bank-Firm Relationships

Roman Goncharenko, Mikhail Mamonov, Steven Ongena, Svetlana Popova and Natalia Turdyeva
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Roman Goncharenko: KU Leuven - Department of Accountancy, Finance and Insurance (AFI); Central Bank of Ireland
Mikhail Mamonov: TBS Business School
Svetlana Popova: The Central Bank of Russian Federation
Natalia Turdyeva: Bank of Russia

No 25-52, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: How do firms respond to sudden and forcible closures of their lenders? Using unique credit register data from a setting where two-thirds of banks were closed within a decade, we find that neither bad nor good firms delay repayments or switch lenders before closures. Afterward, bad firms lose subsidized credit and experience sharp declines in employment, borrowing, and sales, while good firms improve performance. This divergence stems from banks’ prior underpricing of bad firms’ credit risk. Ultimately, good firms match with new solid banks, while bad firms gravitate toward not-yet-detected weak banks---especially where boards overlap or markets are unconcentrated.

Keywords: Firms; Bank clean-up policies; Regulatory forbearance; Credit risk underpricing; Common board membership; Real effects (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 L25 (search for similar items in EconPapers)
Pages: 87 pages
Date: 2025-05
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2552

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