Judicial Discretion, Credit, and the Real Economy

Pedro Amoni and Leonardo Alencar

No 618, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We investigate how court rulings affect banks’ views on the protection of creditor rights, their lending practices, and the ultimate effects on business performance. Leveraging the random assignment of judges to cases brought against financial institutions, we demonstrate banks restrict credit after observing unfavorable decisions issued by pro-debtor judges in disputes involving them. This informational shock is transmitted to firms within banks’ relationships through credit rationing for small businesses, adversely affecting their performance. Our research highlights the significant role of judges in shaping economic activity beyond the immediate parties involved in a legal conflict.

Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP618v3.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:618

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().