Download This PaperCreditor Rights and Bank Losses
Journal of Financial and Quantitative Analysis
56 Pages Posted: 10 Mar 2018 Last revised: 28 May 2020
Date Written: May 27, 2020
Abstract
We develop hypotheses regarding the association between two types of creditor rights and bank loan losses. Contrary to prior research conclusions, bank lending risk is negatively associated with both restrictions on reorganization and the secured creditor being paid first. Using accounting disclosures, we develop novel empirical measures of the probability of default (PD) and loss given default (LGD) at the loan portfolio-level. Different types of creditor rights have differential effects pertaining to PD and LGD and exhibit significant intertemporal variation. We corroborate our cross-country findings using the Bankruptcy Abuse Prevention and Consumer Protection Act shock to creditor rights.
Keywords: Creditor Rights, loan loss reserves, bankruptcy
JEL Classification: G21, G28, M41
Suggested Citation: Suggested Citation