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The real effects of judicial enforcement

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  • Pezone, Vincenzo

Abstract

This paper shows that judicial enforcement has substantial effects on firms’ decisions with regard to their employment policies. To establish causality, I exploit a reorganization of the court districts in Italy involving judicial district mergers as a shock to court productivity. I find that an improvement in enforcement, as measured by a reduction in average trial length, has a large, positive effect on firm employment. These effects are stronger in firms with high leverage, or that belong to industries more dependent on external finance and characterized by higher complementarity between labor and capital, consistent with a financing channel driving the results. Moreover, in presence of stronger enforcement, firms can raise more debt to dampen the impact of negative shocks and, in this way, reduce employment fluctuations.

Suggested Citation

  • Pezone, Vincenzo, 2020. "The real effects of judicial enforcement," SAFE Working Paper Series 192, Leibniz Institute for Financial Research SAFE, revised 2020.
    • Handle: RePEc:zbw:safewp:192
    DOI: 10.2139/ssrn.3090884
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    Cited by:

    1. Vincenzo D'Apice & Franco Fiordelisi & Giovanni W. Puopolo, 2020. "Judicial Efficiency and Lending Quality," CSEF Working Papers 588, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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    More about this item

    Keywords

    Law Enforcement; Duration of Civil Proceedings; Financing Constraints; Finance and Employment;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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