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Judicial Institutions and Firms' External Finance: Evidence from Russia

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  • Julia Shvets

Abstract

This study presents microeconomic evidence on the relationship between the quality of judiciary and lending. We analyze loans to 11,000 Russian firms between 1996 and 2002 and ask whether the creditor's willingness to lend to a firm is affected by the quality of courts that protect the creditor's rights. We match each firm to the regional commercial court where the creditor would have to sue the firm if it defaulted. We use the share of the court's decisions that get appealed as an (inverse) proxy for court quality. First, we find that creditors make fewer loans when their rights are protected by courts with higher appeal rates. Second, banks respond more to court quality than other creditors (such as suppliers). Furthermore, firms that are younger and not owned by their creditors suffer more from poor courts. These latter findings suggest that creditors use reputation concerns and ownership as substitutes for courts in contract enforcement. The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

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  • Julia Shvets, 2013. "Judicial Institutions and Firms' External Finance: Evidence from Russia," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(4), pages 735-764, August.
    • Handle: RePEc:oup:jleorg:v:29:y:2013:i:4:p:735-764
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    File URL: http://hdl.handle.net/10.1093/jleo/ews006
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    Cited by:

    1. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    2. Juan S. Mora-Sanguinetti & Marta Martínez-Matute, 2019. "An economic analysis of court fees: evidence from the Spanish civil jurisdiction," European Journal of Law and Economics, Springer, vol. 47(3), pages 321-359, June.
    3. Ramos Maqueda,Manuel & Chen,Daniel Li, 2021. "The Role of Justice in Development : The Data Revolution," Policy Research Working Paper Series 9720, The World Bank.
    4. Daniel Dejuán & Juan S. Mora-Sanguinetti, 2019. "Quality of enforcement and investment decisions. Firm-level evidence from Spain," Working Papers 1927, Banco de España.
    5. Juan S. Mora-Sanguinetti & Marta Martínez-Matute & Miguel García-Posada, 2017. "Credit, crisis and contract enforcement: evidence from the Spanish loan market," European Journal of Law and Economics, Springer, vol. 44(2), pages 361-383, October.
    6. Giuseppina Gianfreda & Giovanna Vallanti, 2020. "Labor Courts and Firing Costs: The Labor‐Market Effects of Trial Delays," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 59(1), pages 40-84, January.
    7. Peter Grajzl & Valentina Dimitrova-Grajzl & Katarina Zajc, 2016. "Inside post-socialist courts: the determinants of adjudicatory outcomes in Slovenian commercial disputes," European Journal of Law and Economics, Springer, vol. 41(1), pages 85-115, February.
    8. Dimitrova-Grajzl, Valentina & Grajzl, Peter & Slavov, Atanas & Zajc, Katarina, 2016. "Courts in a transition economy: Case disposition and the quantity–quality tradeoff in Bulgaria," Economic Systems, Elsevier, vol. 40(1), pages 18-38.

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