Bank Credit to Small and Medium Sized Enterprises: the Role of Creditor Protection

33 Pages Posted: 21 Feb 2005

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Alejandro Micco

University of Chile

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

We develop a model that shows that inefficient legal protections, disproportionately increase financial restrictions for creditors that have less wealth. Due to fixed monitoring costs in equilibrium banks will not monitor small firms and therefore these firms will adopt risky technologies that imply a higher probability of bankruptcy. This implies that inefficiencies in the bankruptcy procedure will have a greater effect on small firms vis-a-vis large ones. Using a survey of firms in 62 countries around the world (WBES) and econometric techniques that allow us to deal with observed and unobserved country specific components as well as with partial endogeneity, we explore the role of creditor protection on small and medium-size enterprises' access to bank credit. We find that better protection of creditors reduces the financing gap between small and large firms.

Keywords: Law and Finance, Credit

JEL Classification: G2, G3, K4

Suggested Citation

Galindo, Arturo José and Micco, Alejandro, Bank Credit to Small and Medium Sized Enterprises: the Role of Creditor Protection (March 2007). Available at SSRN: https://ssrn.com/abstract=669583 or http://dx.doi.org/10.2139/ssrn.669583

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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