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The Impact of Insolvency Law Information on Borrower Behavior

Impact Evaluation Concept Note. Romania. The Impact of Insolvency Law Information on Borrower Behavior. Motivation I. Bad borrowers (>60 days late) hide behind insolvency laws For debt >10,000 Euro, either the debtor or creditor can initiate legal insolvency procedures

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The Impact of Insolvency Law Information on Borrower Behavior

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  1. Impact Evaluation Concept Note Romania The Impact of Insolvency Law Information on Borrower Behavior

  2. Motivation I • Bad borrowers (>60 days late) hide behind insolvency laws • For debt >10,000 Euro, either the debtor or creditor can initiate legal insolvency procedures • After bankruptcy is initiated, interest stops accruing • Frequent bogus receivables fraud • Fee for private Judicial Administrators in bankruptcy have “super-priority” (over banks!) • Introduction in 2010 of “Insolvency Guidelines”

  3. Evaluation Questions • Our aim is to identify: • The causal effects of learning about the new guidelines on SME borrower: • loan repayment rates • the size and frequency of new loan requests • The impact of in-person training relative to other delivery mechanisms, such as mail, video, and internet

  4. Evaluation Design • We test the interactive impact of: • Learning about the new law • The delivery mechanism of educating borrowers Classroom lecture E-learning Video Mailing (lowest) Intervention Cost (highest) Cost

  5. Evaluation Design • Data: • Quarterly performance of borrowers: • Change in late payments • Incidence of default • Choice of workout: informal, restructuring, liquidation • New loan requests • Amounts (increase/decrease)

  6. Evaluation Design • Key Features: • Invitation to interventions sent by the creditor • Improved take-up? • Does not require any firm-level surveys

  7. Sampling and Data • Loan-level information from a large Romanian Bank • Sample of ‘marginal’ borrowers that: • Pay late, but have not defaulted • Have arranged informal repayment schedules • Sample groups will be randomize by firm characteristics (e.g. credit rating, size, payment history).

  8. Timeline • Data collection, randomization, and anonymization: Summer 2011 • Interventions: September/October 2011 • Data Collection from banks: Quarterly, January 2012 to January 2014 Fall 2011 Summer 2011 2012- 2012

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