Abstract

http://ssrn.com/abstract=2448091
 


 



Law and Finance Matter: Lessons from Externally Imposed Courts


James R. Brown


Iowa State University - Department of Finance

J. Anthony Cookson


University of Colorado at Boulder - Leeds School of Business

Rawley Heimer


Federal Reserve Bank of Cleveland

March 16, 2015


Abstract:     
This paper provides novel evidence on the real and financial market effects of legal institutions. Our analysis exploits persistent and externally imposed differences in court enforcement that arose when the U.S. Congress assigned state courts to adjudicate contracts on a quasi-random subset of Native American reservations. According to area-specific data on small business and household credit, reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher levels of per capita income, with stronger effects in sectors that depend more on external financing. By using exogenous variation in legal institutions across relatively similar sovereign entities, our study offers compelling evidence that stronger contract enforcement and better-developed credit markets lead to significant improvements in broad economic outcomes.

Number of Pages in PDF File: 55

Keywords: law and finance, courts, small business credit, credit markets, contract enforcement, Native American reservations

JEL Classification: G21, K40, P48


Download This Paper

Date posted: June 10, 2014 ; Last revised: March 17, 2015

Suggested Citation

Brown, James R. and Cookson, J. Anthony and Heimer, Rawley, Law and Finance Matter: Lessons from Externally Imposed Courts (March 16, 2015). Available at SSRN: http://ssrn.com/abstract=2448091 or http://dx.doi.org/10.2139/ssrn.2448091

Contact Information

James R. Brown
Iowa State University - Department of Finance ( email )
College of Business
Ames, IA 50011-2063
United States
J. Anthony Cookson (Contact Author)
University of Colorado at Boulder - Leeds School of Business ( email )
Boulder, CO 80309-0419
United States
Rawley Heimer
Federal Reserve Bank of Cleveland ( email )
Mailstop 32
Waltham, MA 02454-9110
United States
Feedback to SSRN


Paper statistics
Abstract Views: 351
Downloads: 47

© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.312 seconds