Corporate Bankruptcy and Banking Competition: The Effect of Financial Leverage

59 Pages Posted: 17 Apr 2021 Last revised: 18 Jun 2021

See all articles by Lara Cathcart

Lara Cathcart

Imperial College Business School

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading

Ludovico Rossi

CUNEF Universidad

Simone Varotto

ICMA Centre - Henley Business School, University of Reading

Date Written: April 13, 2021

Abstract

We investigate the impact of banking competition on corporate credit risk. Although banking competition does not, on average, affect corporate bankruptcy rates, we find that it causes corporate bankruptcies to increase significantly for high-leverage firms. This effect lasts up to eight years after the increase in banking competition and comes mainly from firms that have high short-term debt. These results suggest that banking competition may lead to tougher credit conditions particularly for firms that are more heavily dependent on the credit market.

Keywords: Banking Competition, Default Risk, Financial Leverage, Syndicated Loans

JEL Classification: G21; G32; G33

Suggested Citation

Cathcart, Lara and Dufour, Alfonso and Rossi, Ludovico and Varotto, Simone, Corporate Bankruptcy and Banking Competition: The Effect of Financial Leverage (April 13, 2021). Available at SSRN: https://ssrn.com/abstract=3825488 or http://dx.doi.org/10.2139/ssrn.3825488

Lara Cathcart

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 (0) 20 7594 9126 (Phone)
+44 (0) 20 7594 9189 (Fax)

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Ludovico Rossi (Contact Author)

CUNEF Universidad ( email )

Calle de Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

Simone Varotto

ICMA Centre - Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
30
Abstract Views
253
PlumX Metrics