Abstract

http://ssrn.com/abstract=1572797
 
 

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Quiet life no more? Corporate bankruptcy and bank competition


Todd A. Gormley


University of Pennsylvania - The Wharton School

Nandini Gupta


Indiana University - Kelley School of Business

Anand Jha


Indiana University - Department of Business Economics & Public Policy

March 14, 2014


Abstract:     
Bankruptcy procedures around the world involve long delays that erode firm value and raise the cost of capital (Djankov, et al., 2008). These inefficiencies are likely to be greater in an uncompetitive banking sector, where creditors lack the incentive to undertake the costly effort required to recover assets from delinquent borrowers. Using a unique dataset on the population of corporate bankruptcy filings in India, we analyze whether entry deregulation in the banking sector affects creditors’ incentives to pursue delinquent firms. Exploiting district-level variation in the entry of new private banks, we find that bank entry is associated with an increase in filings by firms seeking a stay on assets to escape increased repayment pressure from creditors. This increase in filings is more pronounced in regions with stronger creditor rights. Bank entry is also associated with a significant 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: 47

Keywords: Bankruptcy, creditor rights, bank competition, managerial incentives

JEL Classification: G21, G23, G28, G38

working papers series


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Date posted: March 19, 2010 ; Last revised: March 15, 2014

Suggested Citation

Gormley, Todd A. and Gupta, Nandini and Jha, Anand, Quiet life no more? Corporate bankruptcy and bank competition (March 14, 2014). Available at SSRN: http://ssrn.com/abstract=1572797 or http://dx.doi.org/10.2139/ssrn.1572797

Contact Information

Todd A. Gormley (Contact Author)
University of Pennsylvania - The Wharton School ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(314) 313-4330 (Phone)
HOME PAGE: http://apps.olin.wustl.edu/faculty/Gormley/

Nandini Gupta
Indiana University - Kelley School of Business ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)
Anand Jha
Indiana University - Department of Business Economics & Public Policy ( email )
Bloomington, IN 47405
United States
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