The Real Effects of Judicial Enforcement

70 Pages Posted: 21 Dec 2017 Last revised: 16 Aug 2021

See all articles by Vincenzo Pezone

Vincenzo Pezone

Tilburg University - Department of Finance

Date Written: April 24, 2020

Abstract

This paper shows that judicial enforcement has substantial effects on firms’ decisions with regard to their employment policies. To establish causality, I exploit a reorganization of the court districts in Italy involving judicial district mergers as a shock to court productivity. I find that an improvement in enforcement, as measured by a reduction in average trial length, has a large, positive effect on firm employment. These effects are stronger in firms with high leverage, or that belong to industries more dependent on external finance and characterized by higher complementarity between labor and capital, consistent with a financing channel driving the results. Moreover, in presence of stronger enforcement, firms can raise more debt to dampen the impact of negative shocks and, in this way, reduce employment fluctuations.

Keywords: Law Enforcement, Duration of Civil Proceedings, Financing Constraints, Finance and Employment

JEL Classification: G30, K42, D25

Suggested Citation

Pezone, Vincenzo, The Real Effects of Judicial Enforcement (April 24, 2020). SAFE Working Paper No. 192, LawFin Working Paper No. 11, Available at SSRN: https://ssrn.com/abstract=3090884 or http://dx.doi.org/10.2139/ssrn.3090884

Vincenzo Pezone (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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