Creditor Protection, Judicial Enforcement and Credit Access

European Central Bank WP No. 1829

49 Pages Posted: 4 Aug 2015

See all articles by Daniela Maresch

Daniela Maresch

Johannes Kepler University

Annalisa Ferrando

European Central Bank (ECB)

Andrea Moro

Cranfield University - School of Management

Date Written: July 10, 2015

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.

Keywords: Credit Access, Judicial System, Property Rights, Creditor Protection

JEL Classification: G21, G28, K41

Suggested Citation

Maresch, Daniela and Ferrando, Annalisa and Moro, Andrea, Creditor Protection, Judicial Enforcement and Credit Access (July 10, 2015). European Central Bank WP No. 1829. Available at SSRN: https://ssrn.com/abstract=2639159 or http://dx.doi.org/10.2139/ssrn.2639159

Daniela Maresch

Johannes Kepler University ( email )

Linz
Austria

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andrea Moro

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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