Quiet Life No More? Corporate Bankruptcy and Bank Competition
Todd A. Gormley
University of Pennsylvania - The Wharton School
Indiana University - Kelley School of Business - Department of Finance
Indiana University - Kelley School of Business - Department of Business Economics & Public Policy
January 6, 2015
Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. Using a unique dataset on corporate bankruptcy filings in India and exploiting district-level variation in bank entry following deregulation, we find that increased banking competition is associated with an increase in filings by firms seeking a stay on assets, a decline in the duration of bankruptcy proceedings, and a shift towards workouts rather than liquidations. The results are consistent with creditors exerting greater effort to pursue delinquent firms and to resolve bankruptcies more quickly following deregulation.
Number of Pages in PDF File: 49
Keywords: Bankruptcy, creditor rights, bank competition, managerial incentives
JEL Classification: G21, G23, G28, G38
Date posted: March 19, 2010 ; Last revised: January 7, 2015
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