Finance, Employment, and Survival: Evidence from Bank Liquidations in Ukraine

Abstract

We estimate the value of specific banking relationships to corporate borrowers using detailed loan data for 2007-19 linked to universal firm-level panel data from Ukraine, where a major financial reform led to the liquidation of 104 banks. We find that 70 percent of firms receive loans from a single "main bank," and less than 13 percent of those whose main bank is liquidated manage to get a subsequent loan from a new lender. Our results suggest that firms losing lender relationships because of liquidation experience employment decreases averaging around 13 percent in the first post-liquidation year and about 26 percent over the five years following the liquidation, conditional on survival. We also find that affected firms are 14 percent less likely to survive through 2019, controlling for firm size, productivity, and industry fixed effects.