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Courts, firms and allocation of credit

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  • Julia Shvets

    (University of Cambridge, Corpus Christi College)

Abstract

The paper investigates whether and how performance of regional commercial courts has affected external credit of Russian enterprises between 1995 and 2002. The results show that more reliable courts lead to higher bank lending to firms. This occurs predominantly through expansion of the number of businesses which have access to bank financing. There is limited evidence that trade credit also responds to changes in quality of courts. However, credit from suppliers is considerably less sensitive to court performance than bank credit. Court reliability is precisely defined and measured objectively using appeal rates of lower court decisions. The paper analytically derives the relationship between reliability of courts, appeal rates and lending to firms, identifying a specific channel through which law enforcement affects external financing. Empirical analysis is based on a new panel dataset which measures credit at the level of a firm and permits a number of robustness tests.

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File URL: http://128.118.178.162/eps/dev/papers/0509/0509026.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0509026.

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Length: 27 pages
Date of creation: 29 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpdc:0509026

Note: Type of Document - pdf; pages: 27
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Web page: http://128.118.178.162

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Keywords: law enforcement; finance;

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  1. Daniel Berkowitz & Katharina Pistor & Jean-Francois Richard, 2000. "Economic Development, Legality, and the Transplant Effect," CID Working Papers 39, Center for International Development at Harvard University.
  2. Evguenia Bessonova & Konstantin Kozlov & Ksenia Yudaeva, 2003. "Trade Liberalization, Foreign Direct Investment, and Productivity of Russian Firms," DEGIT Conference Papers c008_009, DEGIT, Dynamics, Economic Growth, and International Trade.
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