No. 1322 - Judicial efficiency and bank credit to firms

This paper analyses the effect of judicial efficiency, measured by the length of bankruptcy proceedings, on bank credit to firms. It compares credit conditions applied to firms located in municipalities on different sides of jurisdiction borders, controlling for bank characteristics. The paper also analyses the effect of judicial efficiency on firms' leverage and investment, as well as on the presence of non-performing loans.

Judicial efficiency is associated with a reduction in the cost of credit as well as with an increase in its availability for firms, in particular for those at high risk of default. Judicial efficiency also increases leverage and investment for high-risk firms. Finally, judicial efficiency is also associated with a reduction in both the stock and the flow of non-performing loans.

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