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.

Author(s): Bueyuekkarabacak, Berrak; Valev, Neven

Journal: Journal of Macroeconomics, Volume 34, Issue 3, Pages 788-800, September 2012

Abstract: We study the effect of credit information sharing on the likelihood of banking crises using a comprehensive cross-country dataset for the period from 1975 to 2006. The empirical analysis shows that credit information sharing reduces the likelihood of banking crises and it does more so in low income countries. The effect is statistically and economically significant, and applies to both public registries and private bureaus. Furthermore, we show that credit information sharing reduces the impact of rapid credit growth on banking crises. Specifically, rapid credit growth is less likely to lead to a banking crisis in countries with credit information sharing.

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.

Author(s): Martin Brown and Christian Zehnder

Journal: Journal of Money, Credit and Banking, Volume 39 Issue 8, Pages 1883 - 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.

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.

Author(s): Rainer Haselmann, Katharina Pistor and Vikrant Vig

Journal: Review of Financial Studies 2010 23(2):549-580; doi:10.1093/rfs/hhp073

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.

Author(s): Jun Qian and Philip E.Strahan

Journal: The Journal of Finance,Volume 62 Issue 6, Pages 2803 - 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.

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.

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.

Author(s): Maria Soledad, Martinez Peria and Sandeep Singh

Journal: World Bank Policy Research Working Paper

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.

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.

Author(s): Demirgüç-Kunt, Asli; Horváth, Bálint L.; Huizinga, Harry 

Journal: World Bank Economic Review 

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.

Author(s): Caggiano, Giovanni; Calice, Pietro

Journal: World Bank Economic Review 

Abstract: The relationship between bank competition, firm access to finance, and economic growth is a much debated topic in the economic literature and in policy circles. This paper uses a panel of 23 manufacturing sectors over 2002–10 to investigate the impact of bank competition on industry growth in the Gulf Cooperation Council economies. The results show that greater competition allows financially dependent firms to grow faster. In addition, the results show that lower restrictions on banks’ permissible activities, better credit information, and greater institutional effectiveness mitigate the damaging impact of low competition. These results are robust to a variety of checks. The findings suggest that improving bank competition should be an important aspect of the financial sector development agenda in the Gulf Cooperation Council.

Author(s): Braun, Matias; Raddatz, Claudio

Journal: Financial Management 

Abstract: "This article provides evidence on the relation among financial constraints, competition, and the cyclicality of markups. Based on a long series of industry data from a large number of countries, we find that markups increase in conjunction with the business cycle in environments with higher short-term financial constraints (liquidity constraints) and more competition. The evidence also suggests that these two elements complement each other: the procyclicality of markups in firms facing both high competition and high liquidity constraints is higher than that explained by each determinant independently."

Author(s):  Ayyagari, Meghana; Juarros, Pedro; Martinez Peria, Maria Soledad; Singh, Sandeep

Journal: World Bank Publications

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.

Author(s):  Al Samman, Hazem; Azmeh, Chadi 

Journal: International Journal of Economics and Financial Issues

Abstract: This study investigates the influence of financial liberalization on economic growth in developing countries indirectly through their effect on financial development. It selects the size and activity of the financial system as indicators of financial development. The general agreement on trade and services (GATS) is a very useful option for developing countries to consolidate their financial sector reform to give foreign investors more certainty about financial investment opportunities in the economies of developing countries. This study chooses the level of commitments taking by developing countries in the GATS in banking sector as a measure of financial liberalization. The main objective is to examine the effect of developing countries financial liberalization commitments at the GATS on economic growth through their effect on the size and activity of the financial sector. According to the analysis conducted, the results show no real effect of the level of commitments taking by developing countries in the GATS on economic growth through their effect on the size and activity of financial development. Even though the effect of financial development on economic growth is positive, the effect of financial liberalization through the GATS on financial development is almost zero.