The Causal Effect of Bankruptcy Law on the Cost of Finance
49 Pages Posted: 3 Dec 2011
Date Written: December 2, 2011
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: Suggested Citation