What Happens after Default? Stylized Facts on Access to Credit

57 Pages Posted: 29 Mar 2011 Last revised: 21 Oct 2014

See all articles by Diana Bonfim

Diana Bonfim

Banco de Portugal; Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics; Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE)

Christine Richmond

International Monetary Fund (IMF)

Date Written: March 27, 2011

Abstract

In this paper we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the default episodes last 5 quarters or less and that larger firms have shorter default periods. Most firms continue to have access to credit immediately after default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and have experienced longer and more severe defaults.

Keywords: loan default, firm access to credit, duration analysis

JEL Classification: C41, G21, G32, G33

Suggested Citation

Bonfim, Diana and Dias, Daniel A. and Richmond, Christine, What Happens after Default? Stylized Facts on Access to Credit (March 27, 2011). Journal of Banking and Finance, Vol. 36, No. 7, 2012, Available at SSRN: https://ssrn.com/abstract=1752168 or http://dx.doi.org/10.2139/ssrn.1752168

Diana Bonfim (Contact Author)

Banco de Portugal ( email )

Av Almirante Reis, 71
P-1150-012 Lisboa
Portugal

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE) ( email )

Rua do Quelhas, 6
Lisboa, 1200
Portugal

Christine Richmond

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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