IDEAS home Printed from https://ideas.repec.org/p/idb/wpaper/3084.html
   My bibliography  Save this paper

The Cost and Benefits of the Strict Protection of Creditor Rights: Theory and Evidence

Author

Listed:
  • Atilano Jorge Padilla
  • Alejandro Requejo

Abstract

We first review the existing theories on the implications of the various regulations that protect creditors. We then empirically investigate the cost and benefits of the strict protection of creditors` rights. Building on the sample of 49 countries developed by La Porta et al. (1998), we study the impact on debt volume, interest rates and default rates of both an aggregate measure of the degree of protection of creditor rights and efficiency of the judicial system. We confirm previous results showing that an effective judicial system is crucial for the development and optimal performance of the credit market. Yet, in contrast to previous studies, we find no conclusive evidence on the sign and magnitude of the effect of creditors` rights protection on credit market efficiency. Instead, macroeconomic stability appears to be crucial for the outgrowth of wide debt markets.

Suggested Citation

  • Atilano Jorge Padilla & Alejandro Requejo, 2000. "The Cost and Benefits of the Strict Protection of Creditor Rights: Theory and Evidence," Research Department Publications 3084, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3084
    as

    Download full text from publisher

    File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=R-384&pub_file_name=pubR-384.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Meador, Mark, 1982. "The effects of mortgage laws on home mortgage rates," Journal of Economics and Business, Elsevier, vol. 34(2), pages 143-148.
    2. Reint Gropp & John Karl Scholz & Michelle J. White, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 217-251.
    3. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
    4. repec:idb:wpaper:318 is not listed on IDEAS
    5. Michael Manove & A. Jorge Padilla, 1999. "Banking (Conservatively) with Optimists," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 324-350, Summer.
    6. Domowitz, Ian & Eovaldi, Thomas L, 1993. "The Impact of the Bankruptcy Reform Act of 1978 on Consumer Bankruptcy," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 803-835, October.
    7. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    8. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    9. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    10. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-363, June.
    11. Carr, Jack L & Mathewson, G Frank, 1988. "Unlimited Liability as a Barrier to Entry," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 766-784, August.
    12. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-689, October.
    13. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    14. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing in Credit Markets: International Evidence," Research Department Publications 3069, Inter-American Development Bank, Research Department.
    15. repec:hrv:faseco:30728041 is not listed on IDEAS
    16. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    17. Gertner, Robert & Scharfstein, David, 1991. " A Theory of Workouts and the Effects of Reorganization Law," Journal of Finance, American Finance Association, vol. 46(4), pages 1189-1222, September.
    18. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
    19. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-457, June.
    20. Baird, Douglas G., 1991. "The initiation problem in bankruptcy," International Review of Law and Economics, Elsevier, vol. 11(2), pages 223-232, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:3084. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Felipe Herrera Library). General contact details of provider: http://edirc.repec.org/data/iadbbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.