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Creditor rights protection, tort claims and credit

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  • Anyangah, Joshua O.

Abstract

We use a simple lending model where environmental accidents lead to bankruptcies to study the impact of stronger protection of creditor rights. In the model, both the borrower and the creditor undertake actions—the former on accident reducing care and the latter on the screening of loan applicants. Creditor rights may not be preserved entirely due to competing claims from tort victims. The impact of better credit protection crucially depends on the structure of the informational asymmetry. For situations where only the entrepreneur’s action is privately observed, better protection of creditor rights leads to an improvement in the terms and availability of credit. When the actions of the borrower and the lender are both unobservable the results are completely reversed. The impact of better credit protection on social welfare is ambiguously dependent on the quality of borrowers.

Suggested Citation

  • Anyangah, Joshua O., 2017. "Creditor rights protection, tort claims and credit," International Review of Law and Economics, Elsevier, vol. 52(C), pages 29-43.
    • Handle: RePEc:eee:irlaec:v:52:y:2017:i:c:p:29-43
    DOI: 10.1016/j.irle.2017.07.002
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    2. Bertrand, Jérémie & Perrin, Caroline, 2022. "Girls Just Wanna Have Funds? The effect of women-friendly legislation on female-led firms’ access to credit," International Review of Law and Economics, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Creditor rights protection; Environmental torts; Endogenous screening;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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