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Quiet Life No More? Corporate Bankruptcy and Bank Competition

49 Pages Posted: 19 Mar 2010 Last revised: 20 Nov 2016

Todd A. Gormley

Washington University in St. Louis

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Anand Jha

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: October 9, 2016

Abstract

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

Gormley, Todd A. and Gupta, Nandini and Jha, Anand, Quiet Life No More? Corporate Bankruptcy and Bank Competition (October 9, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1572797 or http://dx.doi.org/10.2139/ssrn.1572797

Todd A. Gormley (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)

HOME PAGE: http://www.gormley.info

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

Anand Jha

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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