Bankruptcy Law and Bank Financing

70 Pages Posted: 19 Aug 2015

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: June 25, 2015

Abstract

Exploiting the timing of the 2005-06 Italian bankruptcy law reforms, we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firms’ investment. A 2005 reform introduces procedures facilitating loan renegotiation. The 2006 reform subsequently strengthens creditor rights in liquidation. The first reform increases interest rates and reduces investment. The second reform reduces interest rates and spurs investment. Our results highlight the importance of identifying the distinct effects of liquidation and reorganization, as these procedures address differently the tension in bankruptcy law between the continuation of viable businesses and the preservation of repayment incentives.

Keywords: financial distress, financial contracting, renegotiation, multi-bank borrowing, bankruptcy courts

JEL Classification: G33, K22

Suggested Citation

Rodano, Giacomo and Serrano-Velarde, Nicolas Andre Benigno and Tarantino, Emanuele, Bankruptcy Law and Bank Financing (June 25, 2015). Bank of Italy Temi di Discussione (Working Paper) No. 1013. Available at SSRN: https://ssrn.com/abstract=2645730 or http://dx.doi.org/10.2139/ssrn.2645730

Giacomo Rodano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Nicolas Andre Benigno Serrano-Velarde

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://https://sites.google.com/site/nicolasserranovelarde/

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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