Winner of 2017 WFA-CFAR Best Finance PhD Paper Award
This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Exploiting a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiations.
Securing the Unsecured: How do stronger creditor rights impact firms?
This paper uses the passage of an enforcement on cash assets reform in Croatia to identify the impact of stronger creditor rights on firms. The Act on Execution of Cash Assets benefited mostly the unsecured creditors as it made safer the collection of unsecured debt. Using a novel dataset on courts' efficiency on the type of cases affected by the reform and identifying geographical and sectoral variation on the exposure to the reform, I find that firms receive higher levels of trade credit and short term loans when the enforcement of creditor rights is stronger. Moreover, I provide evidence that such reforms could cause a distortion on firms' cash management, profitability, and investment. These distortive results could be explained by the incorporation of more new firms in cities that have a higher exposure to the reform. Lastly, the local level of employment and of investment increases. These results provide evidence that a stronger enforcement of creditor rights decreases the barriers to entry for firms both at the extensive and at the intensive margin but at the same time it distorts the way that pre-existing firms operate.