Varieties of Creditor Protection: Insolvency Law Reform & Credit Expansion in Developed Market Economies

Simon Deakin, Viviana Mollica and Prabirjit Sarkar ()

Working Papers from Centre for Business Research, University of Cambridge

Abstract: We examine the relationship between creditor protection, law reform and credit expansion using longitudinal data for four developed market economies between 1970 and 2005. By decomposing the different elements of creditor protection, we show that civil law countries (France and Germany) have developed a high level of protection for creditors in the form of controls over the management of debtor firms, while common law countries (UK and USA) have arrived at a high degree of protection in relation to secured creditors' contractual rights over firms' assets. Using panel causality tests and dynamic panel data modelling, we show that laws strengthening creditors' control over debtor firms in these four countries had a long-term positive effect on credit expansion, while reforms increasing secured creditors' rights had a negative effect. We explore the implications of our findings for legal origin theory and the varieties of capitalism approach.

Keywords: Economic policy; financial development; varieties of capitalism; institutional complementarities (search for similar items in EconPapers)
JEL-codes: G30 G38 K22 K40 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-law
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Citations: View citations in EconPapers (2)

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