When Do Creditor Rights Work?

Creditor-friendly laws are generally associated with more credit to the private sector and deeper financial markets. But laws mean little if they are not upheld in the courts. The authors hypothesize that the effectiveness of creditor rights is str...

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Bibliographic Details
Main Authors:	Safavian, Mehnaz, Sharma, Siddharth
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCESS TO BANK ACCESS TO CREDIT ADVERSE SELECTION ASYMMETRIC INFORMATION AVAILABILITY OF CREDIT BANK CREDIT BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANKING SECTOR BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CENTRAL ASIAN CHECKS COLLATERAL COLLATERAL AGREEMENTS COLLATERAL LAW COLLATERAL LAWS COMMERCIAL BANKS CONTRACT DISPUTE CONTRACT DISPUTES CONTRACT ENFORCEMENT COST OF CREDIT COUNTRY FIXED EFFECTS CREDIT INCREASES CREDIT INFORMATION CREDIT INFORMATION BUREAUS CREDIT INFORMATION SYSTEM CREDIT INFORMATION SYSTEMS CREDIT INSTITUTIONS CREDIT LAW CREDIT LAWS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDITOR CREDITOR RIGHT CREDITOR RIGHTS CREDITORS DEBT DEBT RECOVERY DEBTOR DELINQUENCY DEMAND FOR CREDIT DUMMY VARIABLE EAST EUROPEAN ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMICS EMPLOYMENT ENFORCEMENT MECHANISMS ENFORCEMENT PROCEDURES ENFORCEMENT SYSTEM EXTERNAL FINANCE FINANCE CORPORATION FINANCIAL CONTRACTS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OUTCOMES FINANCIAL SECTOR FINANCIAL STATEMENTS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GROSS DOMESTIC PRODUCT IMPERFECT INFORMATION INCOME INCOMPLETE CONTRACTS INFORMATIONAL ASYMMETRIES INSTRUMENT INTEREST RATE INTEREST RATE SPREADS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INVESTMENT FINANCE INVESTOR PROTECTION JUDICIAL EFFICIENCY JUDICIAL ENFORCEMENT JUDICIAL REFORM LEGAL ENFORCEMENT LEGAL FRAMEWORK LEGAL PROTECTIONS LEGAL REFORM LEGAL RIGHTS LEGAL RIGHTS OF CREDITORS LEGAL SYSTEM LEGAL SYSTEMS LENDERS LOAN LOAN CONTRACTS LOAN REPAYMENT LOCAL GOVERNMENTS MARKET FAILURE MARKET FAILURES MARKET REFORMS MIGRATION MORAL HAZARD MOVABLE PROPERTY PERMANENT EMPLOYEES PERMANENT WORKERS POLITICAL ECONOMY POSITIVE COEFFICIENTS PRIVATE CREDIT PRIVATE CREDIT BUREAU PRIVATE REGISTRY PROPERTY RIGHTS REGRESSION ANALYSIS REMITTANCES REORGANIZATION TANGIBLE ASSETS TRADE CREDITORS TRANSACTIONS LAWS TRANSITION COUNTRIES TRANSITION ECONOMIES USE OF BANK CREDIT
Online Access:	http://documents.worldbank.org/curated/en/2007/08/8011242/creditor-rights-work http://hdl.handle.net/10986/7488

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spelling	okr-10986-74882021-04-23T14:02:33Z When Do Creditor Rights Work? Safavian, Mehnaz Sharma, Siddharth ACCESS TO BANK ACCESS TO CREDIT ADVERSE SELECTION ASYMMETRIC INFORMATION AVAILABILITY OF CREDIT BANK CREDIT BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANKING SECTOR BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CENTRAL ASIAN CHECKS COLLATERAL COLLATERAL AGREEMENTS COLLATERAL LAW COLLATERAL LAWS COMMERCIAL BANKS CONTRACT DISPUTE CONTRACT DISPUTES CONTRACT ENFORCEMENT COST OF CREDIT COUNTRY FIXED EFFECTS CREDIT INCREASES CREDIT INFORMATION CREDIT INFORMATION BUREAUS CREDIT INFORMATION SYSTEM CREDIT INFORMATION SYSTEMS CREDIT INSTITUTIONS CREDIT LAW CREDIT LAWS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDITOR CREDITOR RIGHT CREDITOR RIGHTS CREDITORS DEBT DEBT RECOVERY DEBTOR DELINQUENCY DEMAND FOR CREDIT DUMMY VARIABLE EAST EUROPEAN ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMICS EMPLOYMENT ENFORCEMENT MECHANISMS ENFORCEMENT PROCEDURES ENFORCEMENT SYSTEM EXTERNAL FINANCE FINANCE CORPORATION FINANCIAL CONTRACTS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OUTCOMES FINANCIAL SECTOR FINANCIAL STATEMENTS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GROSS DOMESTIC PRODUCT IMPERFECT INFORMATION INCOME INCOMPLETE CONTRACTS INFORMATIONAL ASYMMETRIES INSTRUMENT INTEREST RATE INTEREST RATE SPREADS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INVESTMENT FINANCE INVESTOR PROTECTION JUDICIAL EFFICIENCY JUDICIAL ENFORCEMENT JUDICIAL REFORM LEGAL ENFORCEMENT LEGAL FRAMEWORK LEGAL PROTECTIONS LEGAL REFORM LEGAL RIGHTS LEGAL RIGHTS OF CREDITORS LEGAL SYSTEM LEGAL SYSTEMS LENDERS LOAN LOAN CONTRACTS LOAN REPAYMENT LOCAL GOVERNMENTS MARKET FAILURE MARKET FAILURES MARKET REFORMS MIGRATION MORAL HAZARD MOVABLE PROPERTY PERMANENT EMPLOYEES PERMANENT WORKERS POLITICAL ECONOMY POSITIVE COEFFICIENTS PRIVATE CREDIT PRIVATE CREDIT BUREAU PRIVATE REGISTRY PROPERTY RIGHTS REGRESSION ANALYSIS REMITTANCES REORGANIZATION TANGIBLE ASSETS TRADE CREDITORS TRANSACTIONS LAWS TRANSITION COUNTRIES TRANSITION ECONOMIES USE OF BANK CREDIT Creditor-friendly laws are generally associated with more credit to the private sector and deeper financial markets. But laws mean little if they are not upheld in the courts. The authors hypothesize that the effectiveness of creditor rights is strongly linked to the efficiency of contract enforcement. This hypothesis is tested using firm level data on 27 European countries in 2002 and 2005. The analysis finds that firms have more access to bank credit in countries with better creditor rights, but the association between creditor rights and bank credit is much weaker in countries with inefficient courts. Exploiting the panel dimension of the data and the fact that creditor rights change over time, the authors show that the effect of a change in creditor rights on change in bank credit increases with court enforcement. In particular, a unit increase in the creditor rights index will increase the share of bank loans in firm investment by 27 percent in a country at the 10th percentile of the enforcement time distribution (Lithuania). However, the increase will be only 7 percent in a country at the 80th percentile of this distribution (Kyrgyzstan). Legal protections of creditors and efficient courts are strong complements. 2012-06-07T22:30:05Z 2012-06-07T22:30:05Z 2007-08 http://documents.worldbank.org/curated/en/2007/08/8011242/creditor-rights-work http://hdl.handle.net/10986/7488 English Policy Research Working Paper; No. 4296 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCESS TO BANK ACCESS TO CREDIT ADVERSE SELECTION ASYMMETRIC INFORMATION AVAILABILITY OF CREDIT BANK CREDIT BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANKING SECTOR BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CENTRAL ASIAN CHECKS COLLATERAL COLLATERAL AGREEMENTS COLLATERAL LAW COLLATERAL LAWS COMMERCIAL BANKS CONTRACT DISPUTE CONTRACT DISPUTES CONTRACT ENFORCEMENT COST OF CREDIT COUNTRY FIXED EFFECTS CREDIT INCREASES CREDIT INFORMATION CREDIT INFORMATION BUREAUS CREDIT INFORMATION SYSTEM CREDIT INFORMATION SYSTEMS CREDIT INSTITUTIONS CREDIT LAW CREDIT LAWS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDITOR CREDITOR RIGHT CREDITOR RIGHTS CREDITORS DEBT DEBT RECOVERY DEBTOR DELINQUENCY DEMAND FOR CREDIT DUMMY VARIABLE EAST EUROPEAN ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMICS EMPLOYMENT ENFORCEMENT MECHANISMS ENFORCEMENT PROCEDURES ENFORCEMENT SYSTEM EXTERNAL FINANCE FINANCE CORPORATION FINANCIAL CONTRACTS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OUTCOMES FINANCIAL SECTOR FINANCIAL STATEMENTS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GROSS DOMESTIC PRODUCT IMPERFECT INFORMATION INCOME INCOMPLETE CONTRACTS INFORMATIONAL ASYMMETRIES INSTRUMENT INTEREST RATE INTEREST RATE SPREADS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INVESTMENT FINANCE INVESTOR PROTECTION JUDICIAL EFFICIENCY JUDICIAL ENFORCEMENT JUDICIAL REFORM LEGAL ENFORCEMENT LEGAL FRAMEWORK LEGAL PROTECTIONS LEGAL REFORM LEGAL RIGHTS LEGAL RIGHTS OF CREDITORS LEGAL SYSTEM LEGAL SYSTEMS LENDERS LOAN LOAN CONTRACTS LOAN REPAYMENT LOCAL GOVERNMENTS MARKET FAILURE MARKET FAILURES MARKET REFORMS MIGRATION MORAL HAZARD MOVABLE PROPERTY PERMANENT EMPLOYEES PERMANENT WORKERS POLITICAL ECONOMY POSITIVE COEFFICIENTS PRIVATE CREDIT PRIVATE CREDIT BUREAU PRIVATE REGISTRY PROPERTY RIGHTS REGRESSION ANALYSIS REMITTANCES REORGANIZATION TANGIBLE ASSETS TRADE CREDITORS TRANSACTIONS LAWS TRANSITION COUNTRIES TRANSITION ECONOMIES USE OF BANK CREDIT
spellingShingle	ACCESS TO BANK ACCESS TO CREDIT ADVERSE SELECTION ASYMMETRIC INFORMATION AVAILABILITY OF CREDIT BANK CREDIT BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANKING SECTOR BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CENTRAL ASIAN CHECKS COLLATERAL COLLATERAL AGREEMENTS COLLATERAL LAW COLLATERAL LAWS COMMERCIAL BANKS CONTRACT DISPUTE CONTRACT DISPUTES CONTRACT ENFORCEMENT COST OF CREDIT COUNTRY FIXED EFFECTS CREDIT INCREASES CREDIT INFORMATION CREDIT INFORMATION BUREAUS CREDIT INFORMATION SYSTEM CREDIT INFORMATION SYSTEMS CREDIT INSTITUTIONS CREDIT LAW CREDIT LAWS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDITOR CREDITOR RIGHT CREDITOR RIGHTS CREDITORS DEBT DEBT RECOVERY DEBTOR DELINQUENCY DEMAND FOR CREDIT DUMMY VARIABLE EAST EUROPEAN ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ECONOMICS EMPLOYMENT ENFORCEMENT MECHANISMS ENFORCEMENT PROCEDURES ENFORCEMENT SYSTEM EXTERNAL FINANCE FINANCE CORPORATION FINANCIAL CONTRACTS FINANCIAL DEVELOPMENT FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OUTCOMES FINANCIAL SECTOR FINANCIAL STATEMENTS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GROSS DOMESTIC PRODUCT IMPERFECT INFORMATION INCOME INCOMPLETE CONTRACTS INFORMATIONAL ASYMMETRIES INSTRUMENT INTEREST RATE INTEREST RATE SPREADS INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INVESTMENT FINANCE INVESTOR PROTECTION JUDICIAL EFFICIENCY JUDICIAL ENFORCEMENT JUDICIAL REFORM LEGAL ENFORCEMENT LEGAL FRAMEWORK LEGAL PROTECTIONS LEGAL REFORM LEGAL RIGHTS LEGAL RIGHTS OF CREDITORS LEGAL SYSTEM LEGAL SYSTEMS LENDERS LOAN LOAN CONTRACTS LOAN REPAYMENT LOCAL GOVERNMENTS MARKET FAILURE MARKET FAILURES MARKET REFORMS MIGRATION MORAL HAZARD MOVABLE PROPERTY PERMANENT EMPLOYEES PERMANENT WORKERS POLITICAL ECONOMY POSITIVE COEFFICIENTS PRIVATE CREDIT PRIVATE CREDIT BUREAU PRIVATE REGISTRY PROPERTY RIGHTS REGRESSION ANALYSIS REMITTANCES REORGANIZATION TANGIBLE ASSETS TRADE CREDITORS TRANSACTIONS LAWS TRANSITION COUNTRIES TRANSITION ECONOMIES USE OF BANK CREDIT Safavian, Mehnaz Sharma, Siddharth When Do Creditor Rights Work?
relation	Policy Research Working Paper; No. 4296
description	Creditor-friendly laws are generally associated with more credit to the private sector and deeper financial markets. But laws mean little if they are not upheld in the courts. The authors hypothesize that the effectiveness of creditor rights is strongly linked to the efficiency of contract enforcement. This hypothesis is tested using firm level data on 27 European countries in 2002 and 2005. The analysis finds that firms have more access to bank credit in countries with better creditor rights, but the association between creditor rights and bank credit is much weaker in countries with inefficient courts. Exploiting the panel dimension of the data and the fact that creditor rights change over time, the authors show that the effect of a change in creditor rights on change in bank credit increases with court enforcement. In particular, a unit increase in the creditor rights index will increase the share of bank loans in firm investment by 27 percent in a country at the 10th percentile of the enforcement time distribution (Lithuania). However, the increase will be only 7 percent in a country at the 80th percentile of this distribution (Kyrgyzstan). Legal protections of creditors and efficient courts are strong complements.
format	Publications & Research :: Policy Research Working Paper
author	Safavian, Mehnaz Sharma, Siddharth
author_facet	Safavian, Mehnaz Sharma, Siddharth
author_sort	Safavian, Mehnaz
title	When Do Creditor Rights Work?
title_short	When Do Creditor Rights Work?
title_full	When Do Creditor Rights Work?
title_fullStr	When Do Creditor Rights Work?
title_full_unstemmed	When Do Creditor Rights Work?
title_sort	when do creditor rights work?
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2007/08/8011242/creditor-rights-work http://hdl.handle.net/10986/7488
_version_	1764402172568535040

When Do Creditor Rights Work?

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