1. Doing Business and related research

Research on Getting Credit

Doing Business considers the following list of papers as relevant for research on the importance of creditor rights and sharing of credit information. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know.

  • Credit reporting, financial intermediation and identification systems: international evidence

    Author(s) : Giannetti, Caterina; Jentzsch, Nicola Journal : Journal of International Money and Finance, Volume 33,Pages 60-80, March 2013 Abstract : Credit reporting systems are an important ingredient for financial markets. These systems are based upon the unique identification of borrowers, which is enabled if a compulsory national identification system exists in a country. We present evidence derived from difference-in-difference analyses on the impact of credit reporting and identification systems on financial intermediation in 172 countries between 2000 and 2008. Our results suggest that the introduction of a mandatory identification system has a positive effect on financial intermediation (bank credit to deposits, net interest margins) and financial access (private credit to GDP), especially in countries where there is also a credit reporting system.

  • Credit reporting, relationship banking, and loan repayment

    Author(s) : Martin Brown and Christian Zehnder Journal : Journal of Money, Credit and Banking, Volume 39 Issue 8,Pages1883-1918, 2007 Abstract : How does information sharing between lenders affect borrowers repayment behavior? We show?in a laboratory credit market?that information sharing increases repayment rates, as borrowers anticipate that a good credit record improves their access to credit. This incentive effect of information sharing is substantial when repayment is not third-party enforceable and lending is dominated by one-shot transactions. If, however, repeat interaction between borrowers and lenders is feasible, the incentive effect of credit reporting is negligible, as bilateral banking relationships discipline borrowers. Information sharing nevertheless affects market outcome by weakening lenders' ability to extract rents from relationships.

  • Creditor rights, information sharing, and bank risk taking

    Author(s) : Joel F. Houston, Chen Lin, Ping Lin and Yue Ma Journal : Journal of Financial Economics, Volume 96, Issue 3, June 2010, Pages 485-512 Abstract : Looking at a sample of nearly 2,400 banks in 69 countries, we find that stronger creditor rights tend to promote greater bank risk taking. Consistent with this finding, we also show that stronger creditor rights increase the likelihood of financial crisis. On the plus side, we find that stronger creditor rights are associated with higher growth. In contrast, we find that the benefits of information sharing among creditors appear to be universally positive. Greater information sharing leads to higher bank profitability, lower bank risk, a reduced likelihood of financial crisis, and higher economic growth.

  • How law affects lending

    Author(s) : Rainer Haselmann, Katharina Pistor and Vikrant Vig Journal : Review of Financial Studies 2010 23(2) 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.

  • How laws and institutions shape financial contracts: the case of bank loans

    Author(s) : Jun Qian and Philip E.Strahan Journal : The Journal of Finance,Volume 62 Issue 6,Pages2803-2834, 2007 Abstract : Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment, with their ownership declining relative to domestic banks as creditor protection falls. Our multidimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.

  • Sharing information in the credit market: contract-level evidence from US firms

    Author(s) : Doblas-Madrid, Antonio; Minetti, Raoul Journal : Journal of Financial Economics,Volume 109, Issue 1, Pages 198-223, July 2013 Abstract : We investigate the impact of lenders' information sharing on firms' performance in the credit market using rich contract-level data from a U.S. credit bureau. The staggered entry of lenders into the bureau offers a natural experiment to identify the effect of lenders' improved access to information. Consistent with the predictions of Padilla and Pagano (1997, 2000) and Pagano and Jappelli (1993), we find that information sharing reduces contract delinquencies and defaults, especially when firms are informationally opaque. The results also reveal that information sharing does not reduce the use of guarantees, that is, it may not loosen lending standards. (C) 2013 Elsevier B.V.

  • The distributive impact of reforms in credit enforcement: evidence from indian debt recovery tribunals

    Author(s) : Ulf von Lilienfeld-Toal, Dilip Mookherjee, Sujata Visaria Journal : Econometrica, Volume 80, Issue 2, pages 497-558, March 2012 Abstract : It is generally presumed that stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is infinitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium effects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a firm-level panel, we find evidence that an Indian judicial reform that increased banks' ability to recover nonperforming loans had such an adverse distributive impact.

  • The impact of credit information sharing reforms on firm financing

    Author(s) : Maria Soledad, Martinez Peria and Sandeep Singh Journal : Policy Research Working Paper 7013, World Bank Abstract : This paper analyzes the impact of introducing credit information-sharing systems on firms' access to finance. The analysis uses multi-year, firm-level surveys for 63 countries covering more than 75,000 firms over the period 2002-13. The results reveal that credit bureau reforms, but not credit registry reforms, have a significant and robust effect on firm financing. After the introduction of a credit bureau, the likelihood that a firm has access to finance increases, interest rates drop, maturity lengthens, and the share of working capital financed by banks increases. The effects of credit bureau reforms are more pronounced the greater the coverage of the credit bureau and the scope and accessibility of the credit information-sharing scheme. Credit bureau reforms also have a greater impact on firms' access to finance in countries where contract enforcement is weaker. Finally, there is some evidence that the effects of credit bureau reform are more pronounced for smaller, less experienced, and more opaque firms.

  • Why do firms evade taxes? the role of information sharing and financial sector outreach

    Author(s) : Beck, Thorsten; Lin, Chen; Ma , Yue Journal : Journal of Finance, 2013 Abstract : Tax evasion is a wide-spread phenomenon across the globe and even an important factor of the ongoing sovereign debt crisis. We show that firms in countries with better credit information sharing systems and higher branch penetration evade taxes to a lesser degree. This effect is stronger for smaller firms, firms in smaller cities and towns, firms in industries relying more on external financing, and firms in industries and countries with greater growth potential. This effect is robust to instrumental variable analysis, controlling for firm fixed effects in a smaller panel dataset of countries, and many other robustness tests.

  • How Does Long-Term Finance Affect Economic Volatility?

    Author(s) : Demirgüç-Kunt, Asli; Horváth, Bálint L.; Huizinga, Harry Journal : Policy Research working paper 7535, World Bank Abstract : This paper examines how the ability to access long-term debt affects firm-level growth volatility. The analysis finds that firms in industries with stronger preference to use long-term finance relative to short-term finance experience lower growth volatility in countries with better-developed financial systems, as these firms may benefit from reduced refinancing risk. Institutions that facilitate the availability of credit information and contract enforcement mitigate the refinancing risk and therefore growth volatility associated with short-term financing. Increased availability of long-term finance reduces growth volatility in crisis as well as non-crisis periods.

  • Access to Finance and Job Growth Firm-Level Evidence across Developing Countries

    Author(s) : Ayyagari, Meghana; Juarros, Pedro; Martinez Peria, Maria Soledad; Singh, Sandeep Journal : Policy Research Working Paper 7604, World Bank Abstract : This paper investigates the effect of access to finance on job growth in 50,000 firms across 70 developing countries. Using the introduction of credit bureaus as an exogenous shock to the supply of credit, the paper finds that increased access to finance results in higher employment growth, especially among micro, small, and medium enterprises. The results are robust to using firm fixed effects, industry measures of external finance dependence, and propensity score matching in a complementary panel data set of more than four million firms in 29 developing countries. The findings have implications for policy interventions targeted to produce job growth in micro, small, and medium enterprises.

  • Access to collateral and corporate debt structure: evidence from a natural experiment

    Author(s) : Vig, Vikrant Journal : Journal of Finance, Volume 68, Issue 3, Pages 881-928, June 2013 Abstract : We investigate how firms respond to strengthening of creditor rights by examining their financial decisions following a securitization reform in India. We find that the reform led to a reduction in secured debt, total debt, debt maturity, and asset growth, and an increase in liquidity hoarding by firms. Moreover, the effects are more pronounced for firms that have a higher proportion of tangible assets because these firms are more affected by the secured transactions law. These results suggest that strengthening of creditor rights introduces a liquidation bias and documents how firms alter their debt structures to contract around it.

  • Credit constraints, heterogeneous firms, and international trade

    Author(s) : Manova, Kalina Journal : Review of Economic Studies, Volume 80, Issue 2, Pages 711-744, April 2013 Abstract : This paper examines the detrimental consequences of financial market imperfections for international trade. I develop a heterogeneous-firm model with countries at different levels of financial development and sectors of varying financial vulnerability. Applying this model to aggregate trade data, I study the mechanisms through which credit constraints operate. First, financial development increases countries' exports above and beyond its impact on overall production. Firm selection into exporting accounts for a third of the trade-specific effect, while two thirds are due to reductions in firm-level exports. Second, financially advanced economies export a wider range of products and their exports experience less product turnover. Finally, while all countries service large destinations, exporters with superior financial institutions have more trading partners and also enter smaller markets. All of these effects are magnified in financially vulnerable sectors. These results have important policy implications for less developed economies that rely on exports for economic growth but suffer from poor financial contractibility.

  • Creditor rights, enforcement, and bank loans

    Author(s) : Kee-Hong Bae and Vidhan K.Goyal Journal : The Journal of Finance, Volume 64 Issue 2,Pages823-860, 2009 Abstract : We examine whether differences in legal protection affect the size, maturity, and interest rate spread on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan amounts, shortening loan maturities, and increasing loan spreads. These effects are both statistically significant and economically large. While stronger creditor rights reduce spreads, they do not seem to matter for loan size and maturity. Overall, we show that variation in enforceability of contracts matters a great deal more to how loans are structured and how they are priced.

  • Financial innovation and endogenous growth

    Author(s) : Luc Laeven, Stelios Michalopoulose, Ross Levine Journal : Journal of Financial Intermediation 24(1): 1-24 Abstract : Is financial innovation necessary for sustaining economic growth? To address this question, we build a Schumpeterian model in which entrepreneurs earn profits by inventing better goods and profit-maximizing financiers arise to screen entrepreneurs. The model has two novel features. First, financiers engage in the costly but potentially profitable process of innovation

  • The foundations of financial inclusion: Understanding ownership and use of formal accounts

    Author(s) : Allen, Franklin; Demirguc-Kuntc, Asli; Klapperc, Leora; Martinez Periac, Maria Soledad Journal : Journal of Financial Intermediation 27: 1-30 Abstract : Financial inclusion—defined as the use of formal accounts—can bring many benefits to individuals. Yet, we know very little about the factors underpinning it. This paper explores the individual and country characteristics associated with financial inclusion and the policies that are effective among those most likely to be excluded

  • Financial Access and Household Welfare Evidence from Mauritania

    Author(s) : Amendola, Alessandra; Boccia, Marinella; Mele, Gianluca; Sensini, Luca Journal : Policy Research working paper 7533, World Bank Abstract : This paper evaluates the impact of access to credit from banks and other financial institutions on household welfare in Mauritania. Micro-level data from a 2014 household survey are used to evaluate the relationship between credit access, a range of household characteristics, and welfare indicators. To address potential endogeneity issues, the household isolation level is used to instrument access to credit. The results show that households headed by older, more educated people are more likely to access financial services, as are households located in urban areas. In addition, greater financial access appears to be associated with a reduced dependence on household production and increased investment in human capital.

  • Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Financing?

    Author(s) : Love, Martinex Peria, Singh. Journal : Journal of financial Services Research Abstract : Abstract We use firm-level data to explore the impact of the introduction of collateral registries for movable assets on firms’ access to bank financing. We compare the firms’ access to financing in seven countries before and after they introduce these registries to the firms in three control groups: the countries that do not introduce registries, the countries matched by location and income to those that establish these registries, and the countries that undertake reforms to their legal frameworks for collateral. Overall, we find that the introduction of these registries increases the firms’ access to financing, particularly for smaller and younger firms.

  • How Collateral Laws Shape Lending and Sectoral Activity

    Author(s) : Calomiris, Larrain, Liberti, Sturgess Journal : Journal of Financial Economics Abstract : We demonstrate the central importance of creditors’ ability to use movable assets as collateral (as distinct from immovable real estate) when borrowing from banks. Using a unique cross-country micro-level loan data set containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased toward the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production and investment. An analysis of Slovakia's collateral law reform confirms our findings.

  • The Nexus of Financial Inclusion and Financial Stability A Study of Trade-Offs and Synergies

    Author(s) : Čihák, Martin; Mare, Davide S.; Melecky, Martin Journal : Policy Research working pape 7722, World Bank Abstract : Policy makers and regulators have devoted much effort to reforms aimed at improving financial stability in response to lessons from the 2007–09 crisis. At the same time, much effort has also been directed to promoting greater financial inclusion as an enabler of equal opportunity. To some extent, these endeavors have been exerted in silos, neglecting the possibility that financial inclusion and financial stability could be significantly intertwined, positively or negatively. If there are synergies or trade-offs between inclusion and stability, policy decisions must be informed, and the policy setting, design, and implementation adjusted accordingly. This paper (i) discusses the relationship between financial inclusion and stability, (ii) illustrates empirically interactions between the two financial sector outcomes, and (iii) outlines policy challenges stemming from these interactions

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