Does Bank Competition Affect Corporate Bankruptcy?
58 Pages Posted: 15 Jul 2017 Last revised: 7 May 2019
Date Written: July 14, 2017
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: Suggested Citation