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Credit Cycles and Creditor Rights

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  • Kornejew, Martin
  • Kundu, Shohini
  • Müller, Karsten

Abstract

Do creditor rights amplify or dampen economic fluctuations? Using a panel of 39 countries from 1978 to 2019, we show that credit expansions in economies with strong creditor protection are followed by smaller output losses, fewer non-performing loans, and a greater reallocation of credit away from unproductive sectors. Firm-level evidence from Delaware’s adoption of antirecharacterization laws shows that well-protected creditors cut credit to low-productivity firms while easing borrowing constraints for productive ones. Overall, our findings indicate that stronger creditor rights dampen the output losses of credit booms by facilitating a more efficient reallocation of capital.

Suggested Citation

  • Kornejew, Martin & Kundu, Shohini & Müller, Karsten, 2026. "Credit Cycles and Creditor Rights," CEPR Discussion Papers 21848, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21848
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