Essays in Empirical Corporate Finance and Banking

This dissertation studies topics in the areas of empirical corporate finance, banking, and financial intermediation. In the first chapter, entitled Personal Relationships in Loan Renegotiation: Evidence from Corporate Loans, I estimate the effect of personal relationships between a loan officer and a firm on the probability to renegotiate a loan and the outcomes of the renegotiation. To identify this effect, I exploit a bank reorganization in Greece in the mid-2010s, which allows me to identify two types of firms: one, those whose personal relationships with loan officers were discontinued and those whose relationships were not. This paper’s main conclusion is that personal relationships mitigate the cost of distress for the firm in a loan renegotiation. The firm is worse off following the interruption of its loan officer relationship, as it is less able to renegotiate, and the firm also receives tougher loan terms on renegotiated loans. The insights from the second chapter, entitled Lending Relationships and Moral Hazard in Loan Renegotiation, can have important policy implications related to the rise of nonperforming loans (NPLs). Many banks operating in countries that were hit by the 2010 European debt crisis, faced a significant rise in NPLs. This rise became one of the main challenges that banks face, as high levels of NPLs tie up bank capital and thus reduce profitability and increase funding costs. In the second chapter, I provide empirical evidence that banks, through efficient renegotiation and strong relationships with firms, can prevent loan defaults. This analysis suggests that firms with more distant lending relatioships are more likely to strategically delay a loan payment in order to efficiently trigger a loan renegotiation. This strategic behavior gives rise to the moral hazard phenomenon. In the third chapter, entitled Securing the Unsecured: Do stronger creditor rights affect firms’ access to credit?, I seek to understand whether stronger creditor rights influence firms’ capital structure and access to finance. To answer this question, I use the passage of an enforcement on cash assets reform in Croatia that aimed to increase the collection of the unsecured debt. To identify exogenous variation across firms affected more by the reform versus those that were not, I use a novel dataset on courts’ efficiency in dealing with the specific type of cases affected by the reform. The conclusion of the paper is that firms maintain higher leverage and have easier access to credit when creditor rights are stronger. The firms that benefit the most are medium size and have limited access to tangible assets. When firms are able to borrow more, they invest more in fixed assets

The rise of bond financing in Europe

The rise of bond financing in EuropeUsing large panel data of public and private firms, this paper dissects the growth of bond financing in the Euro Area through the lens of the cross-section of issuers. In recent years, the composition of bond issuers has shifted, with the entry of many smaller and riskier issuers. New issuers invest and grow, instead of simply repaying bank loans. Moreover, holdings of 'buy-and-hold' bond investors are large in aggregate but small for weaker issuers. Nevertheless, the bond investors' sell-off after March 2020 was largely directed at bonds of larger, safer issuers. This micro-evidence can shed light on the implications of corporate bonds market development for smaller firms and financial stability

Firm-bank relationships: A cross-country comparison

We document the structure of firm-bank relationships across eleven euro area coun- tries and present new stylised facts using data from the Eurosystem credit registry - AnaCredit. We look at the number of banking relationships, reliance on the main bank, credit instruments, loan maturity, and interest rates. Firms in Southern Europe borrow from more banks and obtain a lower share of credit from the main bank than those in Northern Europe. They also tend to borrow more on short term, more expensive instruments and to obtain loans with shorter maturity. This is consistent with the hypothesis that firms in Southern Europe rely less on relationship banking and obtain credit less conducive to firm growth, in line with their smaller average size. Relationship lending does not translate in lower rates, possibly because banks appropriate part of the surplus generated by relationship lending through higher rates

Firm-bank relationships: a cross-country comparison

We document the structure of firm-bank relationships across the eleven largest euro area countries and present new stylised facts using novel data from the recent credit registry of the Eurosystem - AnaCredit. We look at the number of banking relationships, reliance on the main bank, credit instruments, loan maturity and interest rates. The granularity of the data allows us to account for cross country differences in firm characteristics. Firms in Southern European countries borrow from a larger number of banks and obtain a lower share of credit from the main bank compared to those in Northern European countries. They also tend to borrow more on short term, more expensive instruments and to obtain loans with shorter maturity. This is consistent with the hypothesis that Southern European countries rely less on relationship banking and obtain credit less conducive to firm growth, in line with the smaller average size of Southern European firms. Instead, no clear pattern emerges in terms of interest rates, consistent with the idea that banks appropriate part of the surplus generated by relationship lending through higher rates