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The Value of Corporate Governance for Bank Finance in an Emerging Economy: Evidence from a Natural Experiment

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  • Simon Quinn

Abstract

This article uses a company law reform in Morocco as a natural experiment to study the value of corporate governance for bank credit. In 2001, Morocco replaced a company law from 19th-century France with modern standards of corporate accountability; this reform was very similar to reforms implemented in many developing countries at about the same time. I evaluate the impact of that reform upon manufacturing firms’ access to bank credit, using panel data to test the effect upon bank overdraft provision of a firm’s legal obligations (i.e., the firm’s choice of the more onerous SA status rather than the less onerous SARL). I find that the reform induced many SA firms to switch to SARL, and that—relative to firms remaining in the SA status—this caused a significant and substantial withdrawal of overdraft facilities. I show that this result is robust to firm’s fixed effects and to the choice of explanatory variables, and I consider heterogeneous effects across different firms. I conclude that the reform may have been counterproductive in several important respects. (JEL O12, K22, G21)

Suggested Citation

  • Simon Quinn, 2014. "The Value of Corporate Governance for Bank Finance in an Emerging Economy: Evidence from a Natural Experiment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(1), pages 1-38.
    • Handle: RePEc:oup:jleorg:v:30:y:2014:i:1:p:1-38.
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    File URL: http://hdl.handle.net/10.1093/jleo/ews030
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    Cited by:

    1. R. Ferretti & P. Pattitoni & R. Patuelli, 2016. "Market Abuse Directive and Insider Trading: Evidence from Italian Tender Offers," Working Papers wp1071, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Riccardo Ferretti & Pierpaolo Pattitoni & Roberto Patuelli, 2021. "Insider Trading and the Market Abuse Directive: Are Voluntary and Mandatory Takeover Bids Different?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 461-485, November.
    3. Meki, Muhammad, 2023. "Levelling the debt–equity playing field: Evidence from Belgium," European Economic Review, Elsevier, vol. 151(C).

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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