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Courts, firms and allocation of credit

Author

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  • Julia Shvets

    (University of Cambridge, Corpus Christi College)

Abstract

The paper investigates whether and how performance of regional commercial courts has affected external credit of Russian enterprises between 1995 and 2002. The results show that more reliable courts lead to higher bank lending to firms. This occurs predominantly through expansion of the number of businesses which have access to bank financing. There is limited evidence that trade credit also responds to changes in quality of courts. However, credit from suppliers is considerably less sensitive to court performance than bank credit. Court reliability is precisely defined and measured objectively using appeal rates of lower court decisions. The paper analytically derives the relationship between reliability of courts, appeal rates and lending to firms, identifying a specific channel through which law enforcement affects external financing. Empirical analysis is based on a new panel dataset which measures credit at the level of a firm and permits a number of robustness tests.

Suggested Citation

  • Julia Shvets, 2005. "Courts, firms and allocation of credit," Development and Comp Systems 0509026, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpdc:0509026
    Note: Type of Document - pdf; pages: 27
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/dev/papers/0509/0509026.pdf
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    References listed on IDEAS

    as
    1. Evguenia Bessonova & Konstantin Kozlov & Ksenia Yudaeva, 2003. "Trade Liberalization, Foreign Direct Investment, and Productivity of Russian Firms," Working Papers w0039, New Economic School (NES).
    2. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
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    More about this item

    Keywords

    law enforcement; finance;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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