Law Enforcement and Firm Financing: Theory and Evidence
Journal of the European Economic Association, 2010, vol. 8, issue 4, 776-816
This paper investigates the economic effects on firms' policies of differences in law enforcement. We find that in judicial districts where trials are longer, bank financing is more costly and firms are smaller. However, we do not find any significant relation between law enforcement and firms' leverage ratio. We rationalize our results within a two-region dynamic general equilibrium model with asymmetric information and collateralized credit contracts. We find that a stronger enforcement of creditors' rights not only improves credit conditions (partial equilibrium effect), but also fosters individual capital accumulation (general equilibrium effect). In line with this theoretical prediction, we find a positive relation between individual savings and quality of legal enforcement. (JEL: E20, K40, G32) (c) 2010 by the European Economic Association.
JEL-codes: E20 K40 G32 (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (18) Track citations by RSS feed
Downloads: (external link)
http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1542-4774/issues link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:tpr:jeurec:v:8:y:2010:i:4:p:776-816
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of the European Economic Association is currently edited by Xavier Vives, George-Marios Angeletos, Orazio P. Attanasio, Fabio Canova and Roberto Perotti
More articles in Journal of the European Economic Association from MIT Press
Bibliographic data for series maintained by Ann Olson ().