The Causal Effect of Bankruptcy Law on the Cost of Finance

49 Pages Posted: 3 Dec 2011

See all articles by Giacomo Rodano

Giacomo Rodano

Bank of Italy

Nicolas Andre Benigno Serrano-Velarde

Bocconi University

Emanuele Tarantino

University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

Date Written: December 2, 2011

Abstract

We exploit the staggered nature of the Italian bankruptcy law reform of 2005-2006 to disentangle the distinct causal impact of both reorganization and liquidation procedures in bankruptcy on firms' cost of loan financing. Using a unique loan-level data-set covering the universe of firm funding contracts we present two major findings: first, that the introduction of a reorganization procedure increased the interest rates on loan financing; second, that the reform that accelerated the liquidation procedure not only decreased firms' cost of finance but also relaxed credit constraints.

Keywords: Default, Renegotiation, Bankruptcy Code

JEL Classification: G21, G30, G33

Suggested Citation

Rodano, Giacomo and Serrano-Velarde, Nicolas Andre Benigno and Tarantino, Emanuele, The Causal Effect of Bankruptcy Law on the Cost of Finance (December 2, 2011). Available at SSRN: https://ssrn.com/abstract=1967485 or http://dx.doi.org/10.2139/ssrn.1967485

Giacomo Rodano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Emanuele Tarantino

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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