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Weak institutions and credit availability: the impact of crime on bank loans

Emilia Bonaccorsi di Patti ()

No 52, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyzes the relationship between the terms on bank loans and local crime rates, employing a sample of over 300,000 bank-firm relationships. Controlling for firm, market and bank characteristics the results show that where the crime rate is higher borrowers pay higher interest rates, pledge more collateral, and resort less to asset-backed loans and more to revolving credit lines than borrowers in low-crime areas. The evidence also suggests that access to credit is adversely affected by crime. The offenses that affect the loan market are those that exogenously increase firm fragility (extortion, organized crime) and raise loss given default (fraud, fraudulent bankruptcy).

Keywords: crime; governance and growth; financial development; credit markets; banks (search for similar items in EconPapers)
JEL-codes: G21 K42 O16 O17 (search for similar items in EconPapers)
Date: 2009-07
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_52_09

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