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Access to Bank Credit after Emerging from Corporate Bankruptcy

Author

Listed:
  • Chloé Zapha

Abstract

This paper identifies the bank credit restrictions that small firms face after bankruptcy. Using the French credit register, I implement a difference-in-difference strategy that exploits staggered removal of bankruptcy flags in the form of an exogenous change in credit ratings. I focus on small and medium-sized businesses between 2012 and 2019 and show that flag removal leads to an increase in bank credit of 1.7% and a 2 percentage point higher chance of forming new banking relationships. Less well-informed banks increase their credit supply after flag removal, particularly to firms whose credit rating reveals good financial performance. New banks start lending to the most constrained firms. As a result, firms substitute trade credit for bank credit and increase their investment rate. This paper supports the policy choice of shortening the bankruptcy flag.

Suggested Citation

  • Chloé Zapha, 2023. "Access to Bank Credit after Emerging from Corporate Bankruptcy," Working papers 928, Banque de France.
    • Handle: RePEc:bfr:banfra:928
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    File URL: https://www.banque-france.fr/en/publications-and-statistics/publications/access-bank-credit-after-emerging-corporate-bankruptcy
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    More about this item

    Keywords

    Corporate bankruptcy; Debt Restructuring; Credit Rating; Bank Lending Relationship; SMEs;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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