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The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals

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Listed:
  • Ulf von Lilienfeld-Toal

    (Stockholm School of Economics)

  • Dilip Mookherjee

    () (Boston University)

  • Sujata Visaria

    () (Boston University)

Abstract

It is generally presumed that strengthening legal enforcement of lender rights increases credit access for all borrowers, by expanding the set of incentive compatible loan contracts. This is based on an implicit assumption of infinitely elastic supply of loans. With inelastic supply, strengthening enforcement generates general equilibrium effects which reduce credit access for small borrowers while expanding it for wealthy borrowers. We find evidence from a firm-level panel data set of such adverse distributional impacts of an Indian judicial reform which increased banks’ ability to recover non-performing loans in the 1990s.

Suggested Citation

  • Ulf von Lilienfeld-Toal & Dilip Mookherjee & Sujata Visaria, 2009. "The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-183, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-183
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    Cited by:

    1. Favara, Giovanni & Morellec, Erwan & Schroth, Enrique & Valta, Philip, 2017. "Debt enforcement, investment, and risk taking across countries," Journal of Financial Economics, Elsevier, vol. 123(1), pages 22-41.
    2. repec:eee:irlaec:v:52:y:2017:i:c:p:29-43 is not listed on IDEAS
    3. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España;Working Papers Homepage.
    4. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    5. Nuri Ersahin & Rustom M. Irani & Katherine Waldock, 2016. "Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law," Working Papers 16-31, Center for Economic Studies, U.S. Census Bureau.
    6. Guilherme Lichand & Rodrigo R. Soares, 2014. "Access to Justice and Entrepreneurship: Evidence from Brazil's Special Civil Tribunals," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 459-499.
    7. Baghai, Ramin & Becker, Bo, 2016. "Non-rating revenue and conflicts of interest," CEPR Discussion Papers 11508, C.E.P.R. Discussion Papers.
    8. Calomiris, Charles W. & Larrain, Mauricio & Liberti, José & Sturgess, Jason, 2017. "How collateral laws shape lending and sectoral activity," Journal of Financial Economics, Elsevier, vol. 123(1), pages 163-188.
    9. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204.
    10. Denyer Willis, Graham & Mota Prado, Mariana, 2014. "Process and Pattern in Institutional Reforms: A Case Study of the Police Pacifying Units (UPPs) in Brazil," World Development, Elsevier, vol. 64(C), pages 232-242.
    11. Campbell, John Y. & Ramadorai, Tarun & Ranish, Benjamin Michael, 2012. "How Do Regulators Influence Mortgage Risk: Evidence from an Emerging Market," Scholarly Articles 12168178, Harvard University Department of Economics.
    12. Degryse, Hans & Ioannidou, Vasso & Liberti, Jose Maria & Sturgess, Jason, 2016. "When Do Laws and Institutions Affect Recovery Rates on Collateral?," CEPR Discussion Papers 11406, C.E.P.R. Discussion Papers.
    13. Ongena, Steven & Cerqueiro, Geraldo & Roszbach, Kasper, 2016. "Collateral damage? On collateral, corporate financing and performance," Working Paper Series 1918, European Central Bank.
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    16. Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series 1645, European Central Bank.
    17. Aloisio Araujo & Bruno Funchal, 2015. "How Much Should Debtors be Punished in Case of Default?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 229-245, April.
    18. Gabriel Madeira, 2014. "Legal enforcement, default and heterogeneity of project-financing contracts," Annals of Finance, Springer, vol. 10(4), pages 569-602, November.
    19. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume,in: Angus Moore & John Simon (ed.), Small Business Conditions and Finance Reserve Bank of Australia.
    20. Kanz, Martin, 2012. "What does debt relief do for development ? evidence from India's bailout program for highly-indebted rural households," Policy Research Working Paper Series 6258, The World Bank.
    21. Anastasia Cozarenco & Ariane Szafarz, 2016. "Microcredit in Industrialized Countries: Unexpected Consequences of Regulatory Loan Ceilings," Working Papers CEB 16-021, ULB -- Universite Libre de Bruxelles.
    22. Kaushik Basu & C Marks, 2011. "Understanding Inflation and Controlling It," Working Papers id:4481, eSocialSciences.
    23. Murillo Campello & Mauricio Larrain, 2015. "Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity," NBER Working Papers 21690, National Bureau of Economic Research, Inc.
    24. Hainz, Christa Maria & Danzer, Alexander, 2015. "Property rights, collateral and interest rates. Evidence from Vietnam," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112880, Verein für Socialpolitik / German Economic Association.
    25. Ugo Troiano & Ricardo Perez-Truglia, 2015. "Tax Debt Enforcement: Theory and Evidence from a Field Experiment in the United States," 2015 Meeting Papers 134, Society for Economic Dynamics.

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