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Creditor protection, judicial enforcement and credit access

Author

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  • Ferrando, Annalisa
  • Moro, Andrea
  • Maresch, Daniela

Abstract

We investigate the role of the judicial system on whether or not the firms obtain the credit they applied for, by looking at the strength of the creditor protection, the strength of property rights, the time for resolving a dispute, its costs and the number of procedures the plaintiff faces. We use data about 48,590 firms from eleven countries collected via the Survey on the Access to Finance of Enterprises (European Central Bank) and data from the World Bank, the Heritage Foundation and Eurostat. The results suggest that the better the judicial enforcement system is (reduced costs, reduced time, and limited number of procedures) and the higher the creditor protection is (high overall strength of the legal system, high property rights protection), the lower the probability that the firms are credit constrained. Our results are robust to selection bias (Heckman selection) as well as different controls and different estimation techniques. More importantly, we find that these variables have considerable economic impact: the probability to obtain credit is up to 40% higher in countries with a better legal system. JEL Classification: G21, G28, K41

Suggested Citation

  • Ferrando, Annalisa & Moro, Andrea & Maresch, Daniela, 2015. "Creditor protection, judicial enforcement and credit access," Working Paper Series 1829, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20151829
    Note: 235236
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    References listed on IDEAS

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    Cited by:

    1. Moro, Andrea & Maresch, Daniela & Ferrando, Annalisa & Udell, Gregory F., 2017. "Does employment protection legislation affect credit access? Evidence from Europe," Working Paper Series 2063, European Central Bank.
    2. Nirosha Hewa Wellalage & Stuart Locke & Helen Samujh, 2019. "Corruption, Gender and Credit Constraints: Evidence from South Asian SMEs," Journal of Business Ethics, Springer, vol. 159(1), pages 267-280, September.
    3. Consolo, Agostino & Malfa, Federica & Pierluigi, Beatrice, 2018. "Insolvency frameworks and private debt: an empirical investigation," Working Paper Series 2189, European Central Bank.

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    More about this item

    Keywords

    Credit Access; Creditor Protection; Judicial System; Property Rights;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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