How Law Affects Lending

Posted: 1 Feb 2010

See all articles by Rainer F. H. Haselmann

Rainer F. H. Haselmann

Leibniz Institute for Financial Research SAFE; Goethe University Frankfurt - Faculty of Economics and Business Administration

Katharina Pistor

Columbia University School of Law

Vikrant Vig

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

Abstract

The paper investigates the effect of legal change on the lending behavior of banks in twelve transition economies. First, we find that banks increase the supply of credit subsequent to legal change. Second, changes in collateral law matter more for increases in bank lending than do changes in bankruptcy law. We attribute this finding to the different functions of collateral and bankruptcy law. While the former enhances the likelihood that individual creditors can realize their claims against a debtor, the latter ensures an orderly process for resolving multiple, and often conflicting, claims after a debtor has become insolvent. Finally, we find that foreign-owned banks respond more strongly to legal change than incumbents.

JEL Classification: F34, F37, G21, G28, G33, K39

Suggested Citation

Haselmann, Rainer F. H. and Pistor, Katharina and Vig, Vikrant, How Law Affects Lending (September 2009). The Review of Financial Studies, Vol. 23, Issue 2, pp. 549-580, 2009, Available at SSRN: https://ssrn.com/abstract=1544185 or http://dx.doi.org/hhp073

Rainer F. H. Haselmann (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Katharina Pistor

Columbia University School of Law ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-0068 (Phone)
212-854-7946 (Fax)

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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