The timeliness of loan loss provisions and the credit crunch in Spain: Evidence from firm-level data

Treball Final de Grau en Finances i Comptabilitat. Codi: FC1049. Curs acadèmic 2013-2014The main objective of this End of Degree Project is to test whether more conservative banks before the economic crisis –i.e., those who exhibited timelier loan loss recognition-, were able to extend more loans to their borrowers after the burst of the real estate bubble in Spain. To do this, we use a unique database (SABI), which allows us to match borrowers and lenders financial statements for the period 1997-2009. Our findings suggest that a) financial entities with higher capital buffers before the crisis exhibit a lower reduction in its lending to non-financial firms during the crisis, b) commercial banks and saving banks with more timely loan loss recognition prior to the crisis exhibit a lower reduction in its lending to non-financial firms during the crisis, c) firms borrowing from banks with more timely loan loss recognition prior to the crisis exhibit a lower likelihood of bankruptcy during the crisis