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Bank Credit To Small And Medium Sized Enterprises: The Role Of Creditor Protection

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Author Info
Arturo Galindo ()
Alejandro Micco ()

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Abstract

We develop a model that shows that inefficient legal protections, disproportionately increase financial restrictions for debtors that have less wealth. Due to fixed monitoring costs in equilibrium banks will not monitor small firms and therefore these firms will adopt risky technologies that imply a higher probability of bankruptcy. This implies that inefficiencies in the bankruptcy procedure will have a greater effect on small firms vis a vis large ones. Using a survey of firms in 62 countries around the world (WBES) and econometric techniques that allow us to deal with observed and unobserved country specific components as well as with partial endogeneity, we explore the role of creditor protection on small and medium-size enterprises' access to bank credit. We find that better protection of creditors reduces the financing gap between small and large firms

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Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 002049.

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Length: 36
Date of creation: 10 Sep 2005
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Handle: RePEc:col:000089:002049

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Clima de negocios y creación de empleo: El efecto del acceso al crédito, la corrupción y el marco regulatorio en el crecimiento de las empresas," RES Working Papers 4560, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Arturo Galindo & Alejandro Micco, 2005. "Protección a los acreedores e inestabilidad del crédito," RES Working Papers 4402, Inter-American Development Bank, Research Department. [Downloadable!]
  3. Arturo Galindo & Alejandro Micco, 2005. "Creditor Protection and Credit Volatility," RES Working Papers 4401, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations Across Firms," RES Working Papers 4559, Inter-American Development Bank, Research Department. [Downloadable!]
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  5. de la Torre, Augusto & Soledad Martinez Peria, Maria & Schmukler , Sergio L., 2008. "Bank involvement with SMEs : beyond relationship lending," Policy Research Working Paper Series 4649, The World Bank. [Downloadable!]
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