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Quality of enforcement and investment decisions. Firm-level evidence from Spain

Daniel Dejuán () and Juan Mora-Sanguinetti
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Daniel Dejuán: Banco de España

No 1927, Working Papers from Banco de España, Working Papers Homepage

Abstract: Investment decisions are generally irreversible and could be affected by holdup problems and opportunism. Thus, investment may need sound enforcement institutions. This paper analyzes firm level data to identify the impact of judicial system efficacy, as representative of the institutional quality, in business investment decisions. More specifically, this research measures the effects of congestion in the Spanish civil (private) jurisdiction at the local level, both when solving ordinary trials and executions (when a judge forces the debtor to pay or to fulfill an obligation) and finds a negative and significant relationship between judicial inefficacy and the gross investment ratio. The effect holds after running several robustness checks. This paper also analyzes the efficacy of the administrative jurisdiction, inspired by the hypothesis of Acemoglu and Johnson (2005), but it does not have a significant impact on investment in our sample.

Keywords: investment decisions; justice; enforcement (search for similar items in EconPapers)
JEL-codes: D25 E22 K41 K12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2019-07
New Economics Papers: this item is included in nep-eur, nep-law and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1927

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