IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v39y2016icp256-274.html
   My bibliography  Save this article

Default resolution and access to fresh credit in an emerging market

Author

Listed:
  • Hussain, Inayat
  • Durand, Robert B.
  • Harris, Mark N.

Abstract

We examine loan defaults by firms and identify the factors that influence both the default resolution process and firms' access to fresh credit after firms exit default. Using a dataset of all commercial loans made in Pakistan from 2006 to 2013, we find an important role for collateral. Collateral expedites both the default resolution process and access to fresh credit after exiting default. Higher interest rates increase the default duration. Relationships with multiple lenders as well as those with multiple branches of one lender are associated with obtaining fresh credit at the post default stage.

Suggested Citation

  • Hussain, Inayat & Durand, Robert B. & Harris, Mark N., 2016. "Default resolution and access to fresh credit in an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 256-274.
    • Handle: RePEc:eee:pacfin:v:39:y:2016:i:c:p:256-274
    DOI: 10.1016/j.pacfin.2016.06.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X16300865
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2016.06.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2014. "Asymmetric adjustment toward optimal capital structure: Evidence from a crisis," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 226-242.
    2. Antje Brunner & Jan Pieter Krahnen, 2008. "Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 415-442.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    4. Bester, Helmut, 1994. "The Role of Collateral in a Model of Debt Renegotiation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 72-86, February.
    5. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
    6. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    7. Oliver Hart & John Moore, 1998. "Default and Renegotiation: A Dynamic Model of Debt," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 1-41.
    8. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    9. Gorton, Gary & Kahn, James, 2000. "The Design of Bank Loan Contracts," The Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 331-364.
    10. Kim, Ji-Hyun, 1999. "Spurious correlation between ratios with a common divisor," Statistics & Probability Letters, Elsevier, vol. 44(4), pages 383-386, October.
    11. Bonfim, Diana & Dias, Daniel A. & Richmond, Christine, 2012. "What happens after corporate default? Stylized facts on access to credit," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2007-2025.
    12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    13. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2014. "Of religion and redemption: Evidence from default on Islamic loans," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 141-159.
    14. Werner Neus & Manfred Stadler, 2013. "Risk and the Role of Collateral in Debt Renegotiation," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(3), pages 273-284, November.
    15. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    16. Bastos, João A., 2010. "Forecasting bank loans loss-given-default," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2510-2517, October.
    17. Qi, Min & Zhao, Xinlei, 2011. "Comparison of modeling methods for Loss Given Default," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2842-2855, November.
    18. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
    19. Bonaimé, Alice Adams & Öztekin, Özde & Warr, Richard S., 2014. "Capital structure, equity mispricing, and stock repurchases," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 182-200.
    20. Roberts, Michael R. & Sufi, Amir, 2009. "Renegotiation of financial contracts: Evidence from private credit agreements," Journal of Financial Economics, Elsevier, vol. 93(2), pages 159-184, August.
    21. Michael R. Roberts & Amir Sufi, 2009. "Control Rights and Capital Structure: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 64(4), pages 1657-1695, August.
    22. Julian Franks & Oren Sussman, 2005. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," Review of Finance, European Finance Association, vol. 9(1), pages 65-96.
    23. Amir Sufi, 2009. "Bank Lines of Credit in Corporate Finance: An Empirical Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1057-1088, March.
    24. Mr. Fabian Valencia & Mr. Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 2008/224, International Monetary Fund.
    25. Amir Sufi, 2009. "Bank Lines of Credit in Corporate Finance: An Empirical Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1057-1088.
    26. Richard A. Kronmal, 1993. "Spurious Correlation and the Fallacy of the Ratio Standard Revisited," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 156(3), pages 379-392, May.
    27. Sewin Chan & Claudia Sharygin & Vicki Been & Andrew Haughwout, 2014. "Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes?," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 342-379, February.
    28. Berger, Allen N. & Frame, W. Scott & Ioannidou, Vasso, 2016. "Reexamining the empirical relation between loan risk and collateral: The roles of collateral liquidity and types," Journal of Financial Intermediation, Elsevier, vol. 26(C), pages 28-46.
    29. Loterman, Gert & Brown, Iain & Martens, David & Mues, Christophe & Baesens, Bart, 2012. "Benchmarking regression algorithms for loss given default modeling," International Journal of Forecasting, Elsevier, vol. 28(1), pages 161-170.
    30. Mary E. Barth & Sanjay Kallapur, 1996. "The Effects of Cross†Sectional Scale Differences on Regression Results in Empirical Accounting Research," Contemporary Accounting Research, John Wiley & Sons, vol. 13(2), pages 527-567, September.
    31. Julian Franks & Oren Sussman, 2005. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," Review of Finance, Springer, vol. 9(1), pages 65-96, March.
    32. Blazy, Régis & Martel, Jocelyn & Nigam, Nirjhar, 2014. "The choice between informal and formal restructuring: The case of French banks facing distressed SMEs," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 248-263.
    33. Yushu Zhu, 2012. "Capital structure: The case of firms issuing debt," Australian Journal of Management, Australian School of Business, vol. 37(2), pages 283-295, August.
    34. David T. Brown & Brian A. Ciochetti & Timothy J. Riddiough, 2006. "Theory and Evidence on the Resolution of Financial Distress," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1357-1397.
    35. Régis Blazy & J. Martel & Nirjhar Nigam, 2014. "The Choice Between Informal and Formal Restructuring:," Post-Print hal-01513995, HAL.
    36. Khan, Feisal, 2010. "How 'Islamic' is Islamic Banking?," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 805-820, December.
    37. Fan, Joseph P. H. & Titman, Sheridan & Twite, Garry, 2012. "An International Comparison of Capital Structure and Debt Maturity Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(1), pages 23-56, February.
    38. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-927, December.
    39. Bellotti, Tony & Crook, Jonathan, 2012. "Loss given default models incorporating macroeconomic variables for credit cards," International Journal of Forecasting, Elsevier, vol. 28(1), pages 171-182.
    40. Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 2003. "Resolution of corporate distress in East Asia," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 199-216, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antje Brunner & Jan Pieter Krahnen, 2008. "Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 415-442.
    2. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    3. Claude Fluet & Paolo G. Garella, 2014. "Debt Rescheduling with Multiple Lenders: Relying on the Information of Others," Economica, London School of Economics and Political Science, vol. 81(324), pages 698-720, October.
    4. Huang, Jiang-Chuan & Huang, Chin-Sheng & You, Chun-Fan, 2015. "Bank relationships and the likelihood of filing for reorganization," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 278-291.
    5. Christophe J. GODLEWSKI, 2017. "Initial conditions and the private debt renegotiation process," Working Papers of LaRGE Research Center 2017-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    6. Christophe J. Godlewski, 2019. "Debt Renegotiation and the Design of Financial Contracts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(2), pages 191-215, June.
    7. Roberts, Michael R. & Sufi, Amir, 2009. "Renegotiation of financial contracts: Evidence from private credit agreements," Journal of Financial Economics, Elsevier, vol. 93(2), pages 159-184, August.
    8. Hans Degryse & Vasso Ioannidou & Erik von Schedvin, 2016. "On the Nonexclusivity of Loan Contracts: An Empirical Investigation," Management Science, INFORMS, vol. 62(12), pages 3510-3533, December.
    9. Abhirup Chakrabarti, 2015. "Organizational adaptation in an economic shock: The role of growth reconfiguration," Strategic Management Journal, Wiley Blackwell, vol. 36(11), pages 1717-1738, November.
    10. Sebnem Kalemli-Ozcan & Elias Papaioannou & José-Luis Peydró, 2013. "Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity," Journal of Finance, American Finance Association, vol. 68(3), pages 1179-1228, June.
    11. Hwang Hee Lee & Frederick Dongchuhl Oh, 2022. "The role of credit default swaps in determining corporate payout policy," Financial Management, Financial Management Association International, vol. 51(2), pages 635-661, June.
    12. Godlewski, Christophe J., 2020. "How legal and institutional environments shape the private debt renegotiation process?," Journal of Corporate Finance, Elsevier, vol. 62(C).
    13. Huang, Jiang-Chuan & Huang, Chin-Sheng, 2011. "The effects of bank relationships on firm private debt restructuring: Evidence from an emerging market," Research in International Business and Finance, Elsevier, vol. 25(1), pages 113-125, January.
    14. Thorsten Beck, 2013. "Finance, growth and fragility: the role of government," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 49-77.
    15. Ewelina Mruk & Inmaculada Aguiar-Díaz & Maria Victoria Ruiz-Mallorquí, 2019. "Use of formal insolvency procedure and judicial efficiency in Spain," European Journal of Law and Economics, Springer, vol. 47(3), pages 435-470, June.
    16. Nikolaev, Valeri V., 2018. "Scope for renegotiation in private debt contracts," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 270-301.
    17. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    18. Gopalakrishnan, Balagopal & Mohapatra, Sanket, 2020. "Insolvency regimes and firms' default risk under economic uncertainty and shocks," Economic Modelling, Elsevier, vol. 91(C), pages 180-197.
    19. Hongda Zhong, 2021. "A Dynamic Model of Optimal Creditor Dispersion," Journal of Finance, American Finance Association, vol. 76(1), pages 267-316, February.
    20. Bonfim, Diana & Dias, Daniel A. & Richmond, Christine, 2012. "What happens after corporate default? Stylized facts on access to credit," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2007-2025.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:39:y:2016:i:c:p:256-274. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.