Judicial Efficiency and Banks Credit Risk Exposure

Giulia Canzian and Antonella Ferrara

No 8930, CESifo Working Paper Series from CESifo

Abstract: We exploit the outset of a regulation seeking to improve judicial efficiency through the rearrangement of courts’ geography in Italy to provide causal evidence on the relationship between judiciary structural reforms and banks financial stability. To this end, we apply a difference-in-differences approach on a dataset on annual proceedings handled by each court over the period 2010-2017, complemented by banks balance sheet information. Our findings yield a negative effect of the reform on both judicial efficiency and Non-Performing Loans ratio. Furthermore, we identify heterogeneous effects based on the existing capacity of the courts to dispose of pending proceedings and geographical location. Digging deeper into this mechanism, we set up a causal mediation analysis to prove that the judicial system affects banks credit risk exposure both indirectly (through judicial efficiency) and directly, thereby influencing borrowers who react to the perceived enforcement.

Keywords: judicial efficiency; non-performing loans; justice reform; difference-in-differences; mediation analysis (search for similar items in EconPapers)
JEL-codes: D04 G21 P43 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8930.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:ces:ceswps:_8930

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().