We examine the impact of the EU Banking Union on the information production of stress tests by exploiting the institutional shift in supervisory responsibility for significant banks to the European Central Bank (ECB) under the Single Supervisory Mechanism (SSM). We hypothesize that a centralized authority with both supervisory and financial stability mandates may reduce the informativeness of stress tests to mitigate negative spillovers, particularly potential threats to financial stability arising from disclosure. Our findings support this hypothesis, showing that the information production from stress tests declined following the introduction of the SSM. This reduction is primarily driven by weakly performing banks. We find no support for alternative explanations such as supervisory leniency, market learning, or the absence of an acute crisis.

In an attempt to match US bankruptcy law, many European countries have reformed their insolvency laws towards a regime that fosters corporate restructuring. This paper evaluates the implications of these reforms. Based on a staggered difference-in-differences analysis around eight insolvency reforms in 15 European countries, this paper finds a relative increase in the cost of debt by about 50 bps in countries with such a reform. The effect is more pronounced among firms being closer to default. As a result of increased cost of debt financing, firms cut investment, innovation, and employee pay. In addition, firms are also more likely to turn into zombies post-treatment. Overall, the results are consistent with the view that creditors may be negatively affected by insolvency law reforms oriented towards restructuring and, thus, demand higher risk premia. This, in turn, causes real effects in the corporate sector.