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Bankruptcy law and bank financing

Giacomo Rodano, Nicolas Serrano-Velarde () and Emanuele Tarantino

No 1013, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Exploiting the timing of the 2005-06 Italian bankruptcy law reforms, we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firms’ investment. A 2005 reform introduces 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 address differently 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: 2015-06
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-law
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Related works:
Journal Article: Bankruptcy law and bank financing (2016) Downloads
Working Paper: Bankruptcy Law and Bank Financing (2015) Downloads
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