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Creditor protection, judicial enforcement and credit access

Author

Listed:
  • Andrea Moro
  • Daniela Maresch
  • Annalisa Ferrando

Abstract

We investigate the impact of the legal system on whether firms obtain the credit they apply for or not. Data comprise unique information provided directly by 48,590 firms from 11 European countries. We look at the strength of creditor protection, the strength of property rights, the time taken to resolve a dispute, the dispute resolution process’s costs and the number of procedures the plaintiff faces using data provided by the World Bank and the Heritage Foundation. The results suggest that the more efficient the judicial enforcement system is, and the higher the creditor protection is, the lower the probability that the firms are partially or totally denied credit. Our results are robust to selection bias (Heckman selection) as well as different controls and different estimation techniques. We find that these variables have considerable economic impact: the probability of obtaining credit is up to 40% higher in countries with more robust legal systems.

Suggested Citation

  • Andrea Moro & Daniela Maresch & Annalisa Ferrando, 2018. "Creditor protection, judicial enforcement and credit access," The European Journal of Finance, Taylor & Francis Journals, vol. 24(3), pages 250-281, February.
    • Handle: RePEc:taf:eurjfi:v:24:y:2018:i:3:p:250-281
    DOI: 10.1080/1351847X.2016.1216871
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    Citations

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    Cited by:

    1. Saona, Paolo & Vallelado, Eleuterio & San Martín, Pablo, 2020. "Debt, or not debt, that is the question: A Shakespearean question to a corporate decision," Journal of Business Research, Elsevier, vol. 115(C), pages 378-392.
    2. Falavigna, G. & Ippoliti, R., 2021. "Reform policy to increase the judicial efficiency in Italy: The opportunity offered by EU post-Covid funds," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 923-943.
    3. Giulia Canzian & Antonella Rita Ferrara, 2021. "Judicial Efficiency and Banks Credit Risk Exposure," CESifo Working Paper Series 8930, CESifo.
    4. Álvarez-Botas, Celia & González, Víctor M., 2021. "Does trust matter for the cost of bank loans?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    5. Greta Falavigna & Roberto Ippoliti, 2022. "Financial constraints, investments, and environmental strategies: An empirical analysis of judicial barriers," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2002-2018, July.
    6. Casino-Martínez, Alejandro & López-Gracia, Jose & Mestre-Barberá, Reyes, 2023. "The regulatory environment and financial constraints of private firms in the European Union," Global Finance Journal, Elsevier, vol. 55(C).
    7. Francesco Aiello & Graziella Bonanno & Stefania P. S. Rossi, 2020. "How firms finance innovation. Further empirics from European SMEs," Metroeconomica, Wiley Blackwell, vol. 71(4), pages 689-714, November.
    8. Bertrand, Jérémie & Perrin, Caroline, 2022. "Girls Just Wanna Have Funds? The effect of women-friendly legislation on female-led firms’ access to credit," International Review of Law and Economics, Elsevier, vol. 72(C).
    9. Yuqiang Cao & Weiming Liang & Guocheng Yang & Jun Yin, 2022. "Judicial Independence and Domestic Supply Chain: Evidence from a Quasi-Natural Experiment," Sustainability, MDPI, vol. 14(24), pages 1-17, December.
    10. Greta Falavigna & Roberto Ippoliti, 2021. "Legal environment and corporate finance: evidence from the Italian manufacturing industry," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 10(1), pages 1-16, December.
    11. Khondker Aktaruzzaman & Omar Farooq, 2020. "Cultural fractionalization and informal finance: evidence from Indian firms," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 661-679, December.
    12. Inmaculada Aguiar-Díaz & Ewelina Mruk & María Victoria Ruiz-Mallorquí, 2024. "How judicial efficiency impacts trade credit and doubtful receivables," European Journal of Law and Economics, Springer, vol. 57(1), pages 63-91, April.
    13. Bahadir Karakoç, 2023. "Working Capital Management and Performance in Financially Dependent Firms: Evidence from Developing Asian Economies," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 9(1), pages 37-55.
    14. Gao, Peng & He, Ling & Hu, Shiyang & Xin, Qingquan, 2024. "Double-edged sword: Does strong creditor protection in the bankruptcy process affect firm productivity," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    15. David Aristei & Gabriele Angori, 2022. "Heterogeneity and state dependence in firms’ access to bank credit," Small Business Economics, Springer, vol. 59(1), pages 47-78, June.
    16. Roberto Gallardo Del Angel & Yiwen Xu, 2023. "Credit rationing, institutions and local public debt," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 18(2), pages 1-21, Abril - J.

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