Insolvency frameworks and private debt: an empirical investigation
37 Pages Posted: 30 Oct 2018
Date Written: October 29, 2018
Abstract
This paper presents new evidence on the importance of insolvency frameworks for private sector debt deleveraging and for the resolution of non-performing loans (NPL). We construct an aggregate insolvency framework index (IFI), which is used as explanatory variable in the empirical analysis. By means of panel estimates over 2003-2016, we shows that OECD countries with better IFI deleverage faster and adjust their NPL levels more rapidly than countries with worse IFI. We also shows that there is a strong correlation between the level of NPL and IFI, which appears to be state-dependent, i.e. in a situation of high unemployment relative to its historical average the NPL ratio is generally lower for a higher IFI. Finally, our results indicate that better insolvency frameworks lead to faster NPL reductions and to lower NPL increases during economic bad times.
Keywords: private debt, non-performing loans, insolvency frameworks, panel estimates
JEL Classification: C23, E02, E05, O52
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