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Borrowing from government owned banks & firm's liquidation risk

Ankitkumar Kariya

Journal of Corporate Finance, 2021, vol. 69, issue C

Abstract: Government Owned Banks (GOBs) have other explicit or implicit objectives apart from profit maximization. In this paper, I study whether this affects the liquidation risk of firms borrowing from GOBs. Using the natural experiment of securitization reform in India that increased firms' liquidation risk, I find that the firms borrowing exclusively from GOBs did less reduction in secured debt usage compared to other firms. In the cross-section, the effect is more substantial in the subsample of firms that are more likely to face financial distress. These results suggest that borrowing from GOBs have less liquidation risk.

Keywords: Government owned banks; Secured debt; Securitization reform; Liquidation risk; Distress; India (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jcorpfin.2021.101982

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