Creditor Rights and Bank Losses

Journal of Financial and Quantitative Analysis

56 Pages Posted: 10 Mar 2018 Last revised: 28 May 2020

See all articles by Amanda Heitz

Amanda Heitz

A.B. Freeman School of Business Tulane University

Ganapathi S. Narayanamoorthy

Tulane University - Accounting & Taxation

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

Heitz, Amanda and Narayanamoorthy, Ganapathi S., Creditor Rights and Bank Losses (May 27, 2020). Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=3137144 or http://dx.doi.org/10.2139/ssrn.3137144

Amanda Heitz (Contact Author)

A.B. Freeman School of Business Tulane University ( email )

6823 Saint Charles Avenue
New Orleans, LA
United States

Ganapathi S. Narayanamoorthy

Tulane University - Accounting & Taxation ( email )

United States

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