Does Judicial Efficiency Lower the Cost of Credit?

Laeven, Luc; Majnoni, Giovanni

doi:10.1596/1813-9450-3159

Cited by 83 publications

(91 citation statements)

References 16 publications

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“…While in Albania there are four loans per 1,000 people, there are almost 800 loans per 1,000 people in Poland (Beck, Demirguc-Kunt and Martinez Peria, 2005). While interest rate spreads -the difference between lending and deposit rates -vary typically between two and four percent in developed financial systems, they are over 30% in Brazil (Laeven and Majnoni, 2005).…”

Section: Mozambiquementioning

confidence: 99%

“…More effective legal systems provide for more flexible, adaptable and rapid conflict resolution rather than rigid, lengthy statutorily based processes with positive repercussions for firms' access to finance (Djankov et al, 2003;Beck, Demirguc-Kunt and Levine, 2005). Cross-country comparisons have shown that financial systems that can rely on more effective legal systems, have lower interest rate spreads and are more efficient (DemirgucKunt, Laeven and Majnoni, 2005). …”

Section: Contractual Frameworkmentioning

confidence: 99%

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Creating An Efficient Financial System : Challenges In A Global Economy

Beck¹

2006

Policy Research Working Papers

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Financial sector development fosters economic growth and reduces poverty by widening and broadening access to finance and allocating society's savings more efficiently. This paper first discusses three pillars, on which sound and efficient financial systems are built: macroeconomic stability and an effective and reliable contractual and informational framework. The paper then describes three different approaches to government involvement in the financial sector: the laissez-faire view, the market-failure view and the market-enabling view. Finally, the paper analyzes the sequencing of financial sector reforms and discusses the benefits and challenges that emerging markets face when opening their financial systems to international capital markets.* The author is with the World Bank's research department. This paper was written for the G20 Seminar on Economic Growth in Pretoria, August 2005. The author is grateful to Robert Cull, Asli Demirguc-Kunt and Patrick Honohan for useful comments and Ed AlHussainy for outstanding support. This paper's findings, interpretations, and conclusions are entirely those of the author and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. 2 Finance: pro-growth and pro-poorFinancial markets and institutions arise to alleviate market frictions that prevent the direct pooling of society's savings and channeling to investment projects. Well developed financial systems ease the exchange of goods and services by providing payment services, help mobilize and pool savings from a large number of investors, acquire and process information about enterprises and possible investment projects, thus allocating society's savings to its most productive use, monitor investments and exert corporate governance, and help diversify and reduce liquidity and intertemporal risk (Levine, 1997 and. However, there is a large variation across countries in the efficiency with which financial institutions and markets reduce transaction costs and information asymmetries, with important repercussions for economic growth and development. Private credit to GDP was 173% in the U.S. in 2003, but only 2% in Mozambique.1 While financial institutions in the U.S. have recently introduced 40 year mortgage loans, in many developing countries lending for housing is restricted to five year loans if at all available. While in Albania there are four loans per 1,000 people, there are almost 800 loans per 1,000 people in Poland (Beck, Demirguc-Kunt and Martinez Peria, 2005). While interest rate spreads -the difference between lending and deposit rates -vary typically between two and four percent in developed financial systems, they are over 30% in Brazil (Laeven and Majnoni, 2005).Countries with better developed financial systems, i.e. financial markets and institutions that more effectively channel society's savings to its most productive use, experience faster economic growth.2 Figure 1 summarizes a well-established body of empirical evidence;countries ...

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Section: Mozambiquementioning

confidence: 99%

Section: Contractual Frameworkmentioning

confidence: 99%

Creating An Efficient Financial System : Challenges In A Global Economy

Beck¹

2006

Policy Research Working Papers

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“…The effect that better judicial efficiency and judicial enforcement (as measured by the degree of property rights protection and the rule of law) lower the interest rate spreads of banks is confirmed by Laeven and Majnoni (2005) for a large crosssection of countries. Jappelli et al (2005) study the effect of the quality of legal enforcement (as measured by the length of trials and the stock of pending trials) on the interest rate.…”

Section: Empirical Implicationsmentioning

confidence: 83%

Creditor passivity: The effects of bank competition and institutions on the strategic use of bankruptcy filings

Hainz

2009

Journal of Comparative Economics

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Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm's type to its competitors. Thereby, asymmetric information between banks is reduced and bank competition intensifies. We find that the better the institutions and the more competitive the banking sector, the higher the bank's incentive to bankrupt defaulting firms. This makes information between banks less asymmetric and thus leads to lower interest rates and less credit rationing.JEL-Classification: G21, G33, K10, D82

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“…Their second finding of a negative relationship between creditor rights and interest rates is confirmed by Aggarwal and Kyaw (2004), who also investigate the effects of the host country environment on the capital structure of MNC affiliates. Similarly, Laeven and Majnoni (2005) find that judicial efficiency is negatively correlated with interest rate spreads across countries.…”

mentioning

confidence: 85%

Creditor Rights and Debt Allocation within Multinationals

Akbel

Schnitzer

2008

SSRN Journal

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We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that partially centralized borrowing structures are optimal with either weak or strong creditor rights. For intermediate levels of creditor rights fully decentralized (centralized) borrowing structures are optimal if managers have strong (weak) empire building tendencies. Decentralized borrowing is more attractive for companies focussing on short-term profitability. Credits are rather taken in countries with better creditor rights and more efficient insolvency systems.JEL classification: G32, F23

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Does Judicial Efficiency Lower the Cost of Credit?

Cited by 83 publications

References 16 publications

Creating An Efficient Financial System : Challenges In A Global Economy

Creating An Efficient Financial System : Challenges In A Global Economy

Creditor passivity: The effects of bank competition and institutions on the strategic use of bankruptcy filings

Creditor Rights and Debt Allocation within Multinationals

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