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| Author: | Hainz, C. |
| Title: | Effects of bank insolvency on corporate incentives in transition economies |
| Journal: | Economics of transition
2005 : VOL 13:2, p. 261-286 |
| Index terms: | Transition economies Banks Models |
| Freeterms: | Insolvency |
| Language: | eng |
| Abstract: | In transition countries, the real impact of banking crises has so far been rather moderate. This paper studies the effect of bank insolvency (hereafter as: b-insl.) on corporate incentives in a model where incumbent banks possess an informational advantage. The b-insl. is found to reduce the incentive to restructure for firms whose incumbent bank becomes insolvent. However, b-insl. provides an additional incentive for firms that enter the credit market to develop new projects because it reduces asymmetric information btw. banks. Firms credit costs are thereby lowered. In addition, a path-dependent development is explained by demonstrating that the firms decision to develop new projects depends on the banks share of non-performing loans. |
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