Does Bank Competition Affect Corporate Bankruptcy?

58 Pages Posted: 15 Jul 2017 Last revised: 7 May 2019

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Mahsa Kaviani

Temple University - Department of Finance

Hosein Maleki

Temple University, Fox School of Business

Date Written: July 14, 2017

Abstract

This paper studies how bank competition influences the resolution of distress and bankruptcy of firms. We compile a large and comprehensive database of US public and private bankruptcies to address this question. By exploiting positive shocks to bank competition, we find that higher competition leads to a significant decline in the rate of non-financial firms' bankruptcy filings. The effect is particularly strong for private firms and in areas with higher densities of small firms. Bank competition also leads to more efficient outcomes of Chapter 11 filings. These effects can be explained by improved availability of credit and banks' better monitoring of firms.

Keywords: financial distress, bankruptcy resolution, bank competition

JEL Classification: G21, G28, G33

Suggested Citation

Cornaggia, Jess and Kaviani, Mahsa and Maleki, Hosein, Does Bank Competition Affect Corporate Bankruptcy? (July 14, 2017). Available at SSRN: https://ssrn.com/abstract=3002938 or http://dx.doi.org/10.2139/ssrn.3002938

Jess Cornaggia

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Mahsa Kaviani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Hosein Maleki

Temple University, Fox School of Business ( email )

Philadelphia, PA 19122
United States

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