Insolvency frameworks and private debt: an empirical investigation

37 Pages Posted: 30 Oct 2018

See all articles by Agostino Consolo

Agostino Consolo

Bocconi University

Federica Malfa

Catholic University of Louvain (UCL)

Beatrice Pierluigi

European Central Bank (ECB)

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

Suggested Citation

Consolo, Agostino and Malfa, Federica and Pierluigi, Beatrice, Insolvency frameworks and private debt: an empirical investigation (October 29, 2018). ECB Working Paper No. 2189, Available at SSRN: https://ssrn.com/abstract=3275147 or http://dx.doi.org/10.2139/ssrn.3275147

Agostino Consolo (Contact Author)

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Federica Malfa

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Beatrice Pierluigi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
86
Abstract Views
538
Rank
527,705
PlumX Metrics