How Law Affects Lending
Rainer Haselmann (),
Katharina Pistor and
Vikrant Vig
MPRA Paper from University Library of Munich, Germany
Abstract:
A voluminous literature seeks to explore the relation between law and finance, but offers little insights into dynamic relation between legal change and behavioral outcomes or about the distributive effects of law on different market participants. The current paper disentangles the law-finance relation by using disaggregate data on banks’ lending patterns in 12 transition countries over a 8 year period. This allows us to control for country level heterogeneity and differentiate between different types of lenders. Employing a differences-in-differences methodology in an exclusive ”laboratory” setting as well as unique hand collected datasets on legal change as well as changes in bank ownership, we find that lending volume responds positively to legal change. However, not all legal change is equally effective. The introduction of a legal regime that enhances each lender’s individual prospects of enforcing her claims (collateral law) results in greater increases in lending volume than changes in bankruptcy law, the essence of which is to provide an orderly liquidation or reorganization process in the presence of multiple creditors. Finally, we find that banks that newly enter the market respond more strongly to legal change than do incumbents. In particular, foreign-owned banks extend their lending volume substantially more than domestic banks.
Keywords: creditor rights; credit market development; bankruptcy; collateral law; bank lending (search for similar items in EconPapers)
JEL-codes: F34 F37 G21 G28 G33 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-ban, nep-reg and nep-tra
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Citations: View citations in EconPapers (37)
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https://mpra.ub.uni-muenchen.de/157/1/MPRA_paper_157.pdf original version (application/pdf)
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Journal Article: How Law Affects Lending (2010) 
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:157
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