Insolvency frameworks and private debt: an empirical investigation
Federica Malfa and
No 2189, Working Paper Series from European Central Bank
This paper presents new evidence on the importance of insolvency frameworks for private sector debt deleveraging and for the resolution of non-performing loans (NPL). We construct an aggregate insolvency framework index (IFI), which is used as explanatory variable in the empirical analysis. By means of panel estimates over 2003-2016, we show that OECD countries with better IFI deleverage faster and adjust their NPL levels more rapidly than countries with worse IFI. We also show that there is a strong correlation between the level of NPL and IFI, which appears to be state-dependent, i.e. in a situation of high unemployment relative to its historical average the NPL ratio is generally lower for a higher IFI. Finally, our results indicate that better insolvency frameworks lead to faster NPL reductions and to lower NPL increases during economic bad times. JEL Classification: C23, E02, E05, O52
Keywords: insolvency frameworks; non-performing loans; panel estimates; private debt (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182189
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