Quiet Life No More? Corporate Bankruptcy and Bank Competition

Todd Gormley, Nandini Gupta and Anand Jha

Journal of Financial and Quantitative Analysis, 2018, vol. 53, issue 2, 581-611

Abstract: Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. To examine this, we use a uniquely large data set of public and private corporate bankruptcy filings spanning a banking-sector reform that deregulated bank entry across different regions of India. We find that increased banking competition is associated with more firms seeking a stay on assets, a decline in bankruptcy duration, and a shift toward workouts rather than liquidations. The results are consistent with creditors exerting greater effort to pursue delinquent firms and resolve bankruptcies more quickly when competition increases.

Date: 2018
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