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Creditor Protection and Financial Cycles

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  • Arturo Galindo

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  • Alejandro Micco

Abstract

We develop a model in which the elasticity of credit to exogenous shocks depends on creditor rights regulations. We show that an increase in creditor protection reduces the elasticity of credit supply to exogenous shocks, and hence the amplitude of the credit cycle. Using an extended set of a measure of creditor rights protection in the spirit of La Porta et al. (1998), we find that stricter creditor rights regulations not only increase the breadth of the credit market but also reduce the volatility of the credit cycle.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4249.

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Date of creation: Apr 2001
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Handle: RePEc:idb:wpaper:4249

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  1. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 141-186.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  3. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1343-66, September.
  4. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  5. Angbazo, Lazarus, 1997. "Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 55-87, January.
  6. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-03, C.V. Starr Center for Applied Economics, New York University.
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Cited by:
  1. Arturo Galindo & Alejandro Micco, 2005. "Bank Credit To Small And Medium Sized Enterprises: The Role Of Creditor Protection," DOCUMENTOS CEDE 002049, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. Ludvig Söderling, 2008. "Credit Cyclicality in Chile," IMF Working Papers 08/55, International Monetary Fund.
  3. Arturo Galindo, 2001. "Creditor Rights and the Credit Market: Where Do We Stand?," Research Department Publications, Inter-American Development Bank, Research Department 4259, Inter-American Development Bank, Research Department.
  4. Alejandro Izquierdo & Alejandro Micco & Ugo Panizza & Alberto E. Chong, 2003. "Corporate Governance and Private Capital Flows to Latin America," IDB Publications 6505, Inter-American Development Bank.
  5. Ralph Chami & Connel Fullenkamp & Sunil Sharma, 2010. "A framework for financial market development," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(2), pages 107-135.
  6. Huang, Rocco R., 2008. "Tolerance for uncertainty and the growth of informationally opaque industries," Journal of Development Economics, Elsevier, vol. 87(2), pages 333-353, October.
  7. Eduardo Lora & Patricia Cortés, 2001. "Obstacles to Business Development and the Size of Firms in Latin America," Research Department Publications, Inter-American Development Bank, Research Department 4257, Inter-American Development Bank, Research Department.
  8. Arturo Galindo, 2001. "Derechos de los acreedores y el mercado crediticio ¿Cuál es la situación actual?," Research Department Publications, Inter-American Development Bank, Research Department 4260, Inter-American Development Bank, Research Department.
  9. Alvaro Aguirre & César Calderón, 2005. "Financial Frictions and Real Devaluations," Working Papers Central Bank of Chile, Central Bank of Chile 318, Central Bank of Chile.
  10. Matias Braun & Borja Larrain, 2004. "Finance and the Business Cycle: International, Inter-industry Evidence," Finance, EconWPA 0403001, EconWPA.
  11. Alberto Chong & Alejandro Izquierdo & Alejandro Micco & Ugo Panizza, 2003. "Conducción empresarial y flujos de capitales privados hacia América Latina," Research Department Publications, Inter-American Development Bank, Research Department 4324, Inter-American Development Bank, Research Department.
  12. Eduardo Lora & Patricia Cortés & Ana María Herrera, 2001. "Los obstáculos al desarrollo empresarial y el tamaño de las firmas en América Latina," IDB Publications 7635, Inter-American Development Bank.
  13. Arturo Galindo & Alejandro Micco, 2005. "Crédito bancario a pequeñas y medianas empresas: el papel de la protección al acreedor," Research Department Publications, Inter-American Development Bank, Research Department 4400, Inter-American Development Bank, Research Department.

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