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How judicial efficiency impacts trade credit and doubtful receivables

Author

Listed:
  • Inmaculada Aguiar-Díaz

    (Las Palmas de Gran Canaria University)

  • Ewelina Mruk

    (Las Palmas de Gran Canaria University)

  • María Victoria Ruiz-Mallorquí

    (Las Palmas de Gran Canaria University)

Abstract

Judicial efficiency has been widely identified as a factor that has an impact on credit markets and firms’ financial decisions. In this paper, we study the relationship between judicial efficiency and trade credit granted by firms to their customers, as well as how the judicial system influences the proportion of those credits that are deemed ‘doubtful’. We test our assumption by analysing a sample of 1526 listed, ‘non-financial’ firms located in countries in the eurozone, during the period 2011–2021. The proxies of judicial efficiency are the length of judicial proceedings and rule of law, obtained from the World Bank’s ‘Doing Business’ and the World Bank Governance Indicators (WGI) databases, respectively. The empirical findings confirm our hypotheses that efficient justice allows for increased supplier confidence when extending financing to their customers and reduces doubtful trade credit.

Suggested Citation

  • Inmaculada Aguiar-Díaz & Ewelina Mruk & María Victoria Ruiz-Mallorquí, 2024. "How judicial efficiency impacts trade credit and doubtful receivables," European Journal of Law and Economics, Springer, vol. 57(1), pages 63-91, April.
    • Handle: RePEc:kap:ejlwec:v:57:y:2024:i:1:d:10.1007_s10657-024-09793-0
    DOI: 10.1007/s10657-024-09793-0
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    More about this item

    Keywords

    Judicial efficiency; Trade credit [granted]; Doubtful trade credit; Accounts receivable; Eurozone;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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