Bank Quality, Judicial Efficiency, and Loan Repayment Delays in Italy
FABIO SCHIANTARELLI
Search for more papers by this authorMASSIMILIANO STACCHINI
Search for more papers by this authorCorresponding Author
PHILIP E. STRAHAN
Fabio Schiantarelli is with Boston College and IZA, Massimiliano Stacchini is with the Bank of Italy, and Philip E. Strahan is with Boston College and NBER. None of the authors received financial support other than their normal salaries from their institutions. The article has been reviewed by the Bank of Italy, but the views expressed in it are the authors' alone and do not necessarily represent those of the institutions with which they are affiliated. We are grateful to Massimiliano Affinito; Giorgio Albareto; Alberto Alesina; Fabio Braggion; Francesco Columba; Riccardo De Bonis; Emilia Bonaccorsi di Patti; Francesco Giavazzi; Luigi Guiso; Harry Huizinga; Francesco Manaresi; Paola Sapienza; Alfonso Rosolia; Ricardo Serrano-Padial; Paolo Sestito; Alberto Zazzaro; and seminar participants at the Bank of Italy, Bocconi University, Boston College, University of Chicago, the Federal Reserve Bank of New York, Georgia Tech, the University of Illinois at Champaign-Urbana, Notre Dame, Nova School of Business, the Bank of Portugal, SAIF, Tilburg University, Tsinghua University, the University of Western Ontario, Drexel University, and the NBER Summer Institute for helpful comments. We also thank Marco Errico, Ana Lariau, and Danilo Liberati for the helpful research assistance.
Correspondence: Philip Strahan, Finance Department, Boston College, 140 Commonwealth Avenue, 324 Fulton Hall, Chestnut Hill MA 02467; email: philip.strahan@bc.edu.
Search for more papers by this authorFABIO SCHIANTARELLI
Search for more papers by this authorMASSIMILIANO STACCHINI
Search for more papers by this authorCorresponding Author
PHILIP E. STRAHAN
Fabio Schiantarelli is with Boston College and IZA, Massimiliano Stacchini is with the Bank of Italy, and Philip E. Strahan is with Boston College and NBER. None of the authors received financial support other than their normal salaries from their institutions. The article has been reviewed by the Bank of Italy, but the views expressed in it are the authors' alone and do not necessarily represent those of the institutions with which they are affiliated. We are grateful to Massimiliano Affinito; Giorgio Albareto; Alberto Alesina; Fabio Braggion; Francesco Columba; Riccardo De Bonis; Emilia Bonaccorsi di Patti; Francesco Giavazzi; Luigi Guiso; Harry Huizinga; Francesco Manaresi; Paola Sapienza; Alfonso Rosolia; Ricardo Serrano-Padial; Paolo Sestito; Alberto Zazzaro; and seminar participants at the Bank of Italy, Bocconi University, Boston College, University of Chicago, the Federal Reserve Bank of New York, Georgia Tech, the University of Illinois at Champaign-Urbana, Notre Dame, Nova School of Business, the Bank of Portugal, SAIF, Tilburg University, Tsinghua University, the University of Western Ontario, Drexel University, and the NBER Summer Institute for helpful comments. We also thank Marco Errico, Ana Lariau, and Danilo Liberati for the helpful research assistance.
Correspondence: Philip Strahan, Finance Department, Boston College, 140 Commonwealth Avenue, 324 Fulton Hall, Chestnut Hill MA 02467; email: philip.strahan@bc.edu.
Search for more papers by this authorABSTRACT
Italian firms delay payment to banks weakened by past loan losses. Exploiting Credit Register data, we fully absorb borrower fundamentals with firm-quarter effects. Identification therefore reflects firm choices to delay payment to some banks, depending on their health. This selective delay occurs more where legal enforcement of collateral recovery is slow. Poor enforcement encourages borrowers not to pay when the value of their bank relationship comes into doubt. Selective delays occur even by firms able to pay all lenders. Credit losses in Italy have thus been worsened by the combination of weak banks and weak legal enforcement.
Supporting Information
| Filename | Description |
|---|---|
| jofi12896-sup-0001-ReplicationCode.zip224 MB |
Replication Code. |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
REFERENCES
- Albertazzi, Ugo, and Domenico J. Marchetti, 2010, Credit supply, flight to quality and evergreening: An analysis of bank-firm relationships after Lehman, Temi di Discussione (Economic Working Papers) 756, Economic Research and International Relations Area, Bank of Italy.
- Altman, Edward I., 1968, Financial ratios, discriminant analysis and the prediction of corporate bankruptcy, Journal of Finance 23, 589–609.
- Altman, Edward I., 1984, A further empirical investigation of the bankruptcy cost question, The Journal of Finance 39, 1067–1089.
- Altman, Edward I., Małgorzata Iwanicz-Drozdowska, Erkki K Laitinen, and Arto Suvas, 2017, Financial distress prediction in an international context: A review and empirical analysis of Altman's z-score model, Journal of International Financial Management & Accounting 28, 131–171.
- Balduzzi, Pierluigi, Emanuele Brancati, and Fabio Schiantarelli, 2018, Financial markets, banks' cost of funding, and firms' decisions: Lessons from two crises, Journal of Financial Intermediation 36, 1–15.
- Bank of Italy, 2015a, Governor's concluding remarks, https://www.bancaditalia.it/pubblicazioni/interventi-governatore/integov2015/en_cf_2014.pdf?language_id=1.
- Bank of Italy, 2015b, Relazione annuale, appendice, https://www.bancaditalia.it/pubblicazioni/relazione-annuale/2014/appendice_2014_completa.pdf.
- Bank of Italy, 2016, Financial stability report, https://www.bancaditalia.it/pubblicazioni/rapporto-stabilita/2016-1/en-FSR-1-2016.pdf?language_id=1 1.
- Battistini, Niccoló, Marco Pagano, and Saverio Simonelli, 2014, Systemic risk, sovereign yields and bank exposures in the euro crisis, Economic Policy 29, 203–251.
- Bofondi, Marcello, Luisa Carpinelli, and Enrico Sette, 2017, Credit supply during a sovereign debt crisis, Journal of the European Economic Association 16, 696–729.
- Bolton, Patrick, Xavier Freixas, Leonardo Gambacorta, and Paolo Emilio Mistrulli, 2016, Relationship and transaction lending in a crisis, Review of Financial Studies 29, 2643–2676.
- Bond, Philip, and Ashok S. Rai, 2009, Borrower run, Journal of International Economics 89, 185–191.
- Bottero, Margherita, Simone Lenzu, and Filippo Mezzanotti, 2015, Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy, Temi di Discussione (Economic Working Papers) 1032 Economic Research and International Relations Area, Bank of Italy.
- Breza, Emily, 2012, Peer effects and loan repayment: Evidence from the krishna default crisis, MIT mimeo.
- Carmignani, Amanda, and Silvia Giacomelli, 2009, Italian civil justice: Regional disparities, Questioni di Economia e Finanza (Occasional Papers) 40, Economic Research and International Relations Area, Bank of Italy.
- Carrasco, Vinicius, and Pablo Salgado, 2014, Coordinated strategic defaults and financial fragility in a costly state verification model, Journal of Financial Intermediation 23, 129–139.
- Cingano, Federico, Francesco Manaresi, and Enrico Sette, 2016, Does credit crunch investment down? New evidence on the real effects of the bank-lending channel, The Review of Financial Studies 29, 2737–2773.
- Correia, Sergio, 2016, A feasible estimator for linear models with multi-way fixed effects, Preprint. http://scorreia.com/research/hdfe.pdf.
- De Marco, Filippo, 2019, Bank lending and the European sovereign debt crisis, Journal of Financial and Quantitative Analysis 54, 155–182.
- Djankov, Simeon, Rafael La Porta, Florencio Lopez de Silanes, and Andrei Shleifer, 2003, Courts, The Quarterly Journal of Economics 118, 453–517.
- Drozd, Lukasz A., and Ricardo Serrano-Padial, 2018, Financial contracting with enforcement externalities, Journal of Economic Theory 178, 153–189.
- Faccio, Mara, 2006, Politically connected firms, American Economic Review 96, 369–386.
- Fedaseyeu, Viktar, 2015, Debt collection agencies and the supply of consumer credit, Working Papers 15-23, Federal Reserve Bank of Philadelphia.
- Gale, Douglas, and Martin Hellwig, 1985, Incentive-compatible debt contracts: The one-period problem, Review of Economic Studies 52, 647–663.
- Gennaioli, Nicola, Alberto Martin, and Stefano Rossi, 2018, Banks, government bonds, and default: What do the data say? Journal of Monetary Economics 98, 98–113.
- Giacomelli, Silvia, and Carlo Menon, 2013, Firm size and judicial efficiency: Evidence from the neighbour's court, Temi di Discussione (Economic Working Papers) 898, Economic Research and International Relations Area, Bank of Italy.
- Giacomelli, Silvia, Sauro Mocetti, Giuliana Palumbo, and Giacomo Roma, 2017, Civil justice in Italy: Recent trends, Bank of Italy Occasional Paper No. 401.
- Goldsmith-Pinkham, Paul, Isaac Sorkin, and Henry Swift, 2018, Bartik instruments: What, when, why, and how, NBER Working Paper No. 24408.
- Granja, Joao, Gregor Matvos, and Amit Seru, 2017, Selling failed banks, The Journal of Finance 72, 1723–1784.
- Gropp, Reint, John Karl Scholz, and Michelle J. White, 1997, Personal bankruptcy and credit supply and demand, The Quarterly Journal of Economics 112, 217–51.
- Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2004, The role of social capital in financial development, American Economic Review 94, 526–556.
- Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2013, The determinants of attitudes toward strategic default on mortgages, Journal of Finance 68, 1473–1515.
- Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2016, Long-term persistence, Journal of the European Economic Association 14, 1401–1436.
- Hortaçsu, Ali, Gregor Matvos, Chad Syverson, and Sriram Venkataraman, 2013, Indirect costs of financial distress in durable goods industries: The case of auto manufacturers, The Review of Financial Studies 26, 1248–1290.
- Ippolito, Filippo, José-Luis Peydró, Andrea Polo, and Enrico Sette, 2016, Double bank runs and liquidity risk management, Journal of Financial Economics 122, 135–154.
- Ivashina, Victoria, and David Scharfstein, 2010, Bank lending during the financial crisis of 2008, Journal of Financial Economics 97, 319–338.
- Jappelli, Tullio, Marco Pagano, and Magda Bianco, 2005, Courts and banks: Effects of judicial enforcement on credit markets, Journal of Money, Credit and Banking 37, 223–244.
- Jensen, Michael C., and William H. Meckling, 1976, Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics 3, 305–360.
- Ijaz Khwaja, Asim, and Atif Mian, 2008, Tracing the impact of bank liquidity shocks: Evidence from an emerging market, American Economic Review 98, 1413–42.
- La Porta, Rafael, Florencio Lopez de Silanes, Andrei Shleifer, and Robert W. Vishny, 1997, Legal determinants of external finance, Journal of Finance 52, 1131–50.
- La Porta, Rafael, Florencio Lopez de Silanes, Andrei Shleifer, and Robert W. Vishny, 1998, Law and finance, Journal of Political Economy 106, 1113–1155.
- Morris, Stephen, and Hyun Song Shin, 2001, Rethinking multiple equilibria in macroeconomic modeling, in Ben S. Bernanke and Kenneth Rogoff, eds.: NBER Macroeconomics Annual 2000 (National Bureau of Economic Research, Cambridge, MA).
- Ponticelli, Jacopo, and Leonardo S. Alencar, 2016, Court enforcement, bank loans, and firm investment: Evidence from a bankruptcy reform in Brazil, The Quarterly Journal of Economics 131, 1365–1413.
- Popov, Alexander, and Neeltje Van Horen, 2014, Exporting sovereign stress: Evidence from syndicated bank lending during the euro area sovereign debt crisis, Review of Finance 19, 1825–1866.
- Putnam, Robert D., Robert Leonardi, and Raffaella Y. Nanetti, 1994, Making Democracy Work: Civic Traditions in Modern Italy (Princeton University Press, Princeton, NJ).
10.2307/j.ctt7s8r7 Google Scholar
- Roberts, Michael R., and Amir Sufi, 2009, Financial contracting: A survey of empirical research and future directions, Annual Review of Financial Economics 1, 207–226.
- Rodano, Giacomo, Nicolas Serrano-Velarde, and Emanuele Tarantino, 2016, Bankruptcy law and bank financing, Journal of Financial Economics 120, 363–382.
- Sapienza, Paola, 2004, The effects of government ownership on bank lending, Journal of Financial Economics 72, 357–384.
- Scott, Jonathan A., and Terrence Smith, 1986, The effect of the Bankruptcy Reform Act of 1978 on small business loan prices, Journal of Financial Economics 16, 119–140.
- Shleifer, Andrei, 2003, Will the sovereign debt market survive? American Economic Review 93, 85–90.
- Townsend, Robert M., 1979, Optimal contracts and competitive markets with costly state verification, Journal of Economic Theory 21, 265–293.
- Trautmann, Stefan T., and Razvan Vlahu, 2013, Strategic loan defaults and coordination: An experimental analysis, Journal of Banking and Finance 37, 747–760.
- Zempano, Giada, 2014, Renzi takes aim at Italy's slow courts, The Wall Street Journal, August 27, 2014.
