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Institutions and Bank Behavior: Legal Environment, Legal Perception, and the Composition of Bank Lending

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  • RAINER HASELMANN
  • PAUL WACHTEL

Abstract

This paper explores how the legal environment affects bank behavior in 20 transition economies. Based on a newly constructed data set we find that banks' loan portfolio composition depends on the legal environment. If banks operate in a well-functioning legal environment they lend relatively more to SMEs and provide more mortgages. On the other hand, banks lend more to large enterprises and to the government if the legal system is unsound. As a transmission channel we identify the banks' willingness to accept collateral which depends on the bankers' perceptions of the prevailing laws regarding collateral. Copyright (c) 2010 The Ohio State University.

Suggested Citation

  • Rainer Haselmann & Paul Wachtel, 2010. "Institutions and Bank Behavior: Legal Environment, Legal Perception, and the Composition of Bank Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 965-984, August.
  • Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:5:p:965-984
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    Cited by:

    1. Edoardo Gaffeo & Petya Garalova, 2014. "On the finance-growth nexus: additional evidence from Central and Eastern Europe countries," Economic Change and Restructuring, Springer, vol. 47(2), pages 89-115, May.
    2. Ferrando, Annalisa & Moro, Andrea & Maresch, Daniela, 2015. "Creditor protection, judicial enforcement and credit access," Working Paper Series 1829, European Central Bank.
    3. Cubillas, Elena & González, Francisco, 2014. "Financial liberalization and bank risk-taking: International evidence," Journal of Financial Stability, Elsevier, vol. 11(C), pages 32-48.
    4. repec:bla:etrans:v:26:y:2018:i:4:p:827-840 is not listed on IDEAS
    5. Marko Malovic & Svetislav Paunovic, 2012. "Flow of Funds in balkan Banks: Narrow Banking or Narrow Escape?," Book Chapters, Institute of Economic Sciences.
    6. repec:eee:jbfina:v:88:y:2018:i:c:p:292-311 is not listed on IDEAS
    7. Awartani, Basel & Belkhir, Mohamed & Boubaker, Sabri & Maghyereh, Aktham, 2016. "Corporate debt maturity in the MENA region: Does institutional quality matter?," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 309-325.
    8. Mc Namara, Andrea & Murro, Pierluigi & O'Donohoe, Sheila, 2017. "Countries lending infrastructure and capital structure determination: The case of European SMEs," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 122-138.
    9. Althammer, Wilhelm & Haselmann, Rainer, 2011. "Explaining foreign bank entrance in emerging markets," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 486-498.
    10. Drakos, Anastassios A. & Kouretas, Georgios P. & Tsoumas, Chris, 2016. "Ownership, interest rates and bank risk-taking in Central and Eastern European countries," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 308-319.
    11. Simon Bilo & Richard Wagner, 2015. "Neutral money: Historical fact or analytical artifact?," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 28(2), pages 139-150, June.
    12. repec:eee:corfin:v:44:y:2017:i:c:p:255-274 is not listed on IDEAS
    13. repec:eee:jebusi:v:95:y:2018:i:c:p:103-118 is not listed on IDEAS
    14. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin, 2014. "Institutional development and bank stability: Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 160-176.

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