Creditor Protection and Credit Volatility

35 Pages Posted: 25 Apr 2011

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Alejandro Micco

University of Chile

Date Written: December 2005

Abstract

This paper studies the relationship between creditor protection and credit volatility. During the negative phase of the business cycle, credit contracts more in countries with poor creditor protection. For similar shocks to business conditions, credit is more volatile in countries where creditors are weakly protected. We test this idea using a dataset on legal determinants of finance in a panel of data of aggregate credit growth for a sample of 139 countries during the period 1990-2003. We find support for the view that better legal protections significantly reduce the impact of exogenous shocks on credit. The results are statistically and economically significant and robust to alternative measures of creditor protection, the inclusion of variables that reflect different stages of economic development and the restriction of our sample to only developing countries.

Suggested Citation

Galindo, Arturo José and Micco, Alejandro, Creditor Protection and Credit Volatility (December 2005). IDB Working Paper No. 439. Available at SSRN: https://ssrn.com/abstract=1818728 or http://dx.doi.org/10.2139/ssrn.1818728

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

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