Should Courts Enforce Credit Contracts Strictly ?

Alberto Zazzaro (alberto.zazzaro@unina.it)

No 181, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: The linkages between law and finance are currently the centre of wideranging empirical investigations. This article analyse the effects of legal system efficiency on the functioning of the credit market by using a simple banking model with information asymmetries about borrowers'entrepreneurial talent. It is shown that improvements in the enforcement of contracts by courts reduce agency problems, but can also reduce banks' incentive to adequately screen borrowers, thus worsening credit allocation and social welfare. Improvements in accounting standards, however, always make bank screening of borrowers less costly and improve credit allocation.

Keywords: accounting standards; credit allocation; law enforcement; screening (search for similar items in EconPapers)
JEL-codes: G21 K41 K42 (search for similar items in EconPapers)
Pages: 30
Date: 2003-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://docs.dises.univpm.it/web/quaderni/pdf/181.pdf First version, 2003 (application/pdf)

Related works:
Journal Article: Should Courts Enforce Credit Contracts Strictly? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:181

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