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

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  • Arturo Galindo

    ()

  • Alejandro Micco

    ()

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:col:000089:002049

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Keywords: Law and Finance; Credit; Small and Medium Size Enterprises;

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Citations

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Cited by:
  1. Arturo Galindo & Alejandro Micco, 2005. "Creditor Protection and Credit Volatility," Research Department Publications 4401, Inter-American Development Bank, Research Department.
  2. 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.
  3. 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," Research Department Publications 4559, Inter-American Development Bank, Research Department.
  4. Arturo Galindo & Alejandro Micco, 2005. "Protección a los acreedores e inestabilidad del crédito," Research Department Publications 4402, Inter-American Development Bank, Research Department.
  5. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
  6. World Bank & International Finance Corporation, 2006. "Doing Business 2007 : How to Reform," World Bank Publications, The World Bank, number 7245, October.
  7. 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," Research Department Publications 4560, Inter-American Development Bank, Research Department.

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