BANK CREDIT TO SMALL AND MEDIUM SIZED ENTERPRISES: THE ROLE OF CREDITOR PROTECTION

Arturo Galindo and Alejandro Micco ()

No 2049, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: We develop a model that shows that inefficient legal protections, disproportionately increase financial restrictions for debtors that have less wealth. Due to fixed monitoring costs in equilibrium banks will not monitor small firms and therefore these firms will adopt risky technologies that imply a higher probability of bankruptcy. This implies that inefficiencies in the bankruptcy procedure will have a greater effect on small firms vis a vis large ones. Using a survey of firms in 62 countries around the world (WBES) and econometric techniques that allow us to deal with observed and unobserved country specific components as well as with partial endogeneity, we explore the role of creditor protection on small and medium-size enterprises' access to bank credit. We find that better protection of creditors reduces the financing gap between small and large firms

Keywords: Law and Finance; Credit; Small and Medium Size Enterprises (search for similar items in EconPapers)
JEL-codes: G10 G2 G3 K4 (search for similar items in EconPapers)
Pages: 36
Date: 2005-09-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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https://repositorio.uniandes.edu.co/bitstream/handle/1992/7961/dcede2005-53.pdf

Related works:
Working Paper: Bank Credit to Small and Medium-Sized Enterprises: The Role of Creditor Protection (2005)
Working Paper: Bank Credit to Small and Medium-Sized Enterprises: The Role of Creditor Protection (2005)
Working Paper: Bank Credit to Small and Medium-Sized Enterprises: The Role of Creditor Protection (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000089:002049

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