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Which legal procedure affects business investment most, and which companies are most sensitive? Evidence from microdata

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  • Dejuan-Bitria, Daniel
  • Mora-Sanguinetti, Juan S.

Abstract

The negative impact of judicial inefficiency on investment decisions has been examined theoretically, supported by aggregate empirical studies at the country level. Whether this effect is observed at the firm level, however -and under what circumstances and through what channels it occurs- has yet to be determined. This paper fills the gap by analyzing the problem empirically for the period 2002–2016 using information from 650,000 firms (3.5 million observations). Our approach is novel, because it shows that the impact is greater in large companies than small ones, that it occurs more strongly in industrial companies, and that the civil (private) jurisdiction is the crucial one in achieving efficiency improvements. These findings are important for aggregate productivity growth.

Suggested Citation

  • Dejuan-Bitria, Daniel & Mora-Sanguinetti, Juan S., 2021. "Which legal procedure affects business investment most, and which companies are most sensitive? Evidence from microdata," Economic Modelling, Elsevier, vol. 94(C), pages 201-220.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:201-220
    DOI: 10.1016/j.econmod.2020.09.023
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    Cited by:

    1. Juan de Lucio & Juan S. Mora-Sanguinetti, 2021. "New dimensions of regulatory complexity and their economic cost. An analysis using text mining," Working Papers 2107, Banco de España.
    2. Juan S. Mora-Sanguinetti & Javier Quintana & Isabel Soler & Rok Spruk, 2023. "Sector-level economic effects of regulatory complexity: evidence from Spain," Working Papers 2312, Banco de España.
    3. de Lucio, Juan & Mora-Sanguinetti, Juan S., 2022. "Drafting “better regulation”: The economic cost of regulatory complexity," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 163-183.
    4. Juan S. Mora-Sanguinetti, 2021. "The impact of the efficacy of justice on business investment in Spain," Economic Bulletin, Banco de España, issue 3/2021.
    5. Alessandro Melcarne & Juan S. Mora-Sanguinetti & Rok Spruk, 2021. "Democracy, technocracy and economic growth: evidence from 20 century Spain," Working Papers 2118, Banco de España.

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    More about this item

    Keywords

    Business investment decisions; Judicial system; Legal procedures;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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