Credit quality determinants of banks: how important are bankruptcy reforms?
ISSN: 0144-3585
Article publication date: 28 February 2023
Issue publication date: 22 November 2023
Abstract
Purpose
Although several microeconomic and macroeconomic factors driving banks' credit quality have been well-studied in the literature, one aspect which appears to have received limited attention is bankruptcy reforms. To address this issue, the author exploits data on Middle East and North Africa (MENA) country banks during the period 2010–2020 and examines the impact of bankruptcy laws on their credit quality.
Design/methodology/approach
In view of the staggered nature of the implementation of legal reforms across countries, the author utilize a difference-in-differences specification to tease out the causal impact.
Findings
The findings reveal that bankruptcy reforms lead to a significant improvement in banks' credit quality. The impact is manifest mainly for conventional banks and driven by an increase in recovery intensity. The author also presents evidence which shows that such reforms exert positive real effects, although this impact differs across country characteristics.
Originality/value
The study is among the early ones for the MENA region to assess the interlinkage between bankruptcy reforms and banks' credit quality.
Keywords
Acknowledgements
The paper has benefitted greatly from the incisive comments by two anonymous referees on an earlier draft, which improved the analysis. Needless to mention, the views expressed and the approach pursued in the paper reflect the personal opinion of the author.
Citation
Ghosh, S. (2023), "Credit quality determinants of banks: how important are bankruptcy reforms?", Journal of Economic Studies, Vol. 50 No. 8, pp. 1672-1693. https://doi.org/10.1108/JES-08-2022-0415
Publisher
:Emerald Publishing Limited
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