The Causal Effect of Bankruptcy Law on the Cost of Finance

Serrano-Velarde, Nicolas (2012) The Causal Effect of Bankruptcy Law on the Cost of Finance. In: World Bank Group seminar, 19/06/2012, Washington DC.

Abstract

We exploit the staggered nature of the Italian bankruptcy law reform of 2005-2006 to disentangle the distinct causal impact of both reorganization and liquidation procedures in bankruptcy on firms' cost of loan financing. Using a unique loan-level dataset covering the universe of firm funding contracts we present two major findings: first, that the introduction of a reorganization procedure increased the interest rates on loan financing; second, that the reform that accelerated the liquidation procedure not only decreased firms' cost of finance but also relaxed credit constraints.

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