Cole, Rebel and Turk, Rima (2007): Legal origin, creditor protection and bank lending around the world.
This is the latest version of this item.
Download (201kB) | Preview
In this study, we test whether bankers make more loans when they enjoy superior creditor protection. We test these hypotheses using bank-level data from 35 developed countries and 113 developing countries over the period 2000-2006 and using a random-effects model that controls for bank heterogeneity. We find that bankers allocate a significantly larger portion of their assets to risky loans: (i) when they enjoy English common-law legal origin rather than French civil-law legal origin; (ii) when creditors’ rights are weaker; (iii) when their banks are larger; and (iv) when the largest shareholder has a lower percentage ownership. We also find that bankers in developing countries, but not in developed countries, allocate a significantly larger portion of their assets to risky loans when legal enforcement of creditor rights is more efficient. Overall, these results provide strong support for the theory of legal origin but provide only mixed support for the “power” theories of credit.
|Item Type:||MPRA Paper|
|Original Title:||Legal origin, creditor protection and bank lending around the world|
|Keywords:||banking, bank loans, bank risk-taking, creditor protection, creditors’ rights, emerging markets, investor protection, judicial enforcement, law and finance, legal origin, legal rights|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Prof. Rebel Cole|
|Date Deposited:||11. Mar 2011 19:57|
|Last Modified:||13. Feb 2013 08:02|
Acharya, Viral V., Yakov Amihud, and Lubomir Litov. (2010). Creditor rights and corporate risk-taking. Journal of Financial Economics, forthcoming.
Aghion, Phillippe. and P. Bolton. (1992). An incomplete contracts approach to corporate bankruptcy. Review of Economic Studies 59: 473–494.
Aghion, Phillippe, Oliver Hart, John Moore. (1992). The economics of bankruptcy reform. Journal of Law, Economics and Organization 8(3): 523–546.
Beach, Willam W. and Tim Kane. (2008). Methodology: Measuring the 10 economic freedoms. In 2008 Index of Economic Freedom, Heritage Foundation, Washington, DC.
Beck, Thorsten, Asli Demirguc-Kunt, Ross Levine. (2003a). Law and finance: Why does legal origin matter? Journal of Comparative Economics 31: 653–675.
Beck, Thorsten, Asli Demirguc-Kunt, Ross Levine (2003b). Law, endowments, and finance. Journal of Financial Economics 70: 137–181.
Beck, Thorsten, Ross Levine, N. Loayza, (2000). Finance and the source of growth. Journal of Financial Economics 58: 261-300.
Claessens, Stijn, Asli Demirgüc-Kunt and Harry Huizinga. (2001). How does foreign entry affect the domestic banking market? Journal of Banking & Finance 25: 891–911.
Demirguc-Kunt, Asli and Vogislav Maksimovic (1998). Law, finance, and firm growth. The Journal of Finance 53: 2107-2137.
Demirguc-Kunt, Asli and Vogislav Maksimovic (2002). Funding growth in bank-based and market-based financial systems: evidence from firm-level data. Journal of Financial Economics 65: 337-363.
Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer (2003). Courts. Quarterly Journal of Economics: 453-517.
Djankov, Simeon, Caralee McLiesh and Andrei Shleifer (2007). Private credit in 129 countries. Journal of Financial Economics 84:299-329 .
Glaeser, Edward Ludwig, Simon Johnson and Andrei Shleifer (2001). Coase Versus The Coasians. The Quarterly Journal of Economics 116 (3): 853-899.
Hart, Oliver and J. Moore. (1994). A theory of debt based on the inalienability of human capital. Quarterly Journal of Economics 109: 841–879.
Hart, Oliver and J. Moore. (1998). Default and renegotiation: a dynamic model of debt. Quarterly Journal of Economics 113: 1–42.
Houston, Joel, Chen Lin, Ping Lin and Yue Ma. (2010). Creditor rights, information sharing and bank risk-taking. Journal of Financial Economics, forthcoming.
Iannotta, Giuliano, Giacomo Nocera and Andrea Sironi. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking and Finance 31: 2127-2149.
John, Kose, Lubomir Litov and Bernard Yeung. (2008). Corporate governance and risk-taking. The Journal of Finance 63 (4): 1679-1728.
Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi. (2007). Governance Matters VI: Governance indicators for 1996–2006. World Bank Policy Research Working Paper 4280.
King, Robert and Ross Levine (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics 108: 717-738.
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny (1997). Legal determinants of external finance. The Journal of Finance 52(3): 1131-1150. 21
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny (1998). Law and finance. The Journal of Political Economy 106 (6): 1113-1155.
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny (1999). The Quality of Government, Journal of Law, Economics and Organization 15 (1): 222-279.
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny (2002). Investor Protection and Corporate Valuation. Journal of Finance 57(3): 1147-1170.
Levine, Ross, 1999, Law, finance, and economic growth, Journal of Financial Intermediation 8: 36-67.
Levine, Ross 2004. Finance and growth: theory, evidence, and mechanisms. NBER Working paper No. 10776.
Levine, Ross, S. Zervos (1998). Stock markets, banks and economic growth. American Economic Review 88: 537-558.
Qian, Jun, Philip Strahan (2007). How laws and institutions shape financial contracts: The case of bank loans. The Journal of Finance, forthcoming.
Rajan, Raghuram and Luigi Zingales (1995). Financial Systems, Industrial Structure and Growth, Oxford Review of Economic Policy 17 (4): 467-482
Rajan, Raghuram and Luigi Zingales (1998). Financial dependence and growth. American Economic Review 88: 559-586.
Townsend, Robert M. (1979). Optimal contracts and competitive markets with costly state verification. Journal of Economic Theory 21 (2): 265-293.
Available Versions of this Item
- Legal origin, creditor protection and bank lending around the world. (deposited 11. Mar 2011 19:57) [Currently Displayed]