Quiet Life No More? Corporate Bankruptcy and Bank Competition
49 Pages Posted: 19 Mar 2010 Last revised: 20 Nov 2016
Date Written: October 9, 2016
Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. To examine this, we use a uniquely large dataset of public and private corporate bankruptcy filings spanning a banking-sector reform that deregulated bank entry across different regions of India. We find that increased banking competition is associated with more firms seeking a stay on assets, a decline in bankruptcy duration, and a shift towards workouts rather than liquidations. The results are consistent with creditors exerting greater effort to pursue delinquent firms and resolve bankruptcies more quickly when competition increases.
Keywords: Bankruptcy, creditor rights, bank competition, managerial incentives
JEL Classification: G21, G23, G28, G38
Suggested Citation: Suggested Citation