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Weak institutions and credit availability: the impact of crime on bank loans

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  • Emilia Bonaccorsi di Patti

    (Banca d'Italia)

Abstract

This paper analyzes the relationship between the terms on bank loans and local crime rates, employing a sample of over 300,000 bank-firm relationships. Controlling for firm, market and bank characteristics the results show that where the crime rate is higher borrowers pay higher interest rates, pledge more collateral, and resort less to asset-backed loans and more to revolving credit lines than borrowers in low-crime areas. The evidence also suggests that access to credit is adversely affected by crime. The offenses that affect the loan market are those that exogenously increase firm fragility (extortion, organized crime) and raise loss given default (fraud, fraudulent bankruptcy).

Suggested Citation

  • Emilia Bonaccorsi di Patti, 2009. "Weak institutions and credit availability: the impact of crime on bank loans," Questioni di Economia e Finanza (Occasional Papers) 52, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_52_09
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2009-0052/QEF_52.pdf
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    References listed on IDEAS

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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    More about this item

    Keywords

    crime; governance and growth; financial development; credit markets; banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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