Bankruptcy law and bank financing

Giacomo Rodano, Nicolas Serrano-Velarde and Emanuele Tarantino

Journal of Financial Economics, 2016, vol. 120, issue 2, 363-382

Abstract: 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)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X16000210
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Bankruptcy law and bank financing (2015)
Working Paper: Bankruptcy Law and Bank Financing (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:2:p:363-382

DOI: 10.1016/j.jfineco.2016.01.016

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().