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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title The Effect of Bank Monitoring on Loan Repayment
Organization Unit
  • Nicola Branzoli
  • Fulvia Fringuellotti
  • English
Institution University of Zurich
Series Name -
Number -
Date 2018
Abstract Text We investigate the effect of bank monitoring on loan repayment. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring, which is based on bank requests for information on their existing borrowers. We perform a causal analysis, exploiting the Italy Regional Production Tax, IRAP, as a source of exogenus variation in bank monitoring. Our approach is supported by a theoretical model predicting that a decrease in the tax rate improves bank incentives to monitor borrowers. We find that an increase in the number of requests for information, as driven by a 1 percentage point decrease in the IRAP tax rate, reduces the probability of loan distress by 4 percentage points two quarters ahead.
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