Should Courts Enforce Credit Contracts Strictly
Bibliographic Data
| ID | 9718534 |
|---|---|
| Authors | Alberto Zazzaro (0000-0003-2647-6296, Marche Polytechnic University, corresponding author) |
| Year | 2005 |
| Volume | 115 |
| Issue | 500 |
| Pages | 166-184 |
| Publication date | 2005-01-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (OUP) (PUBLISHER) |
| DOI | 10.1111/j.1468-0297.2004.00964.x |
| OpenAlex | W2740196562 |
| Language | EN |
| References cited | 30 |
The intimate linkages between law and finance are currently the centre of wide-ranging empirical investigations. This article presents a simple banking model with information asymmetries concerning borrowers' entrepreneurial talent. It is shown that improvements in the enforcement of contract by courts reduce agency problems but can also reduce the bank's incentive to screen borrowers adequately, thus worsening credit allocation. A stricter enforcement of credit contracts, therefore, may be socially harmful even if costlessly achieved. Improvements in accounting standards, however, always make bank screening of borrowers less costly and improve credit allocation and social welfare. Copyright 2005 Royal Economic Society
Business · Economics · Law and economics · Political science · Banking stability, regulation, efficiency · Corporate Finance and Governance · Corporate Insolvency and Governance · Law
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Law and Finance
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Overlending
| Citation velocity | historical |
|---|---|
| Highly cited | No |