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Bankruptcy Law and Bank Financing

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

No 547, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

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 nd 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. JEL classification: G33, K22. Keywords: Financial Distress, Financial Contracting, Renegotiation, Multi-bank Borrowing, Bankruptcy Courts.

Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-law
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Journal Article: Bankruptcy law and bank financing (2016) Downloads
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