Bankruptcy law and bank financing
Nicolas Serrano-Velarde () and
Journal of Financial Economics, 2016, vol. 120, issue 2, 363-382
Exploiting the timing of the 2005–2006 Italian bankruptcy law reforms, we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firm investment. A 2005 reform introduces reorganization 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 differently address the tension in bankruptcy law between the continuation of viable businesses and the preservation of repayment incentives.
Keywords: Financial distress; Financial contracting; Renegotiation; Multi-bank borrowing; Bankruptcy courts (search for similar items in EconPapers)
JEL-codes: G33 K22 (search for similar items in EconPapers)
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Working Paper: Bankruptcy law and bank financing (2015)
Working Paper: Bankruptcy Law and Bank Financing (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:2:p:363-382
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