Institutional environment and bank loans: Evidence from 25 developing countries

Institutional environment and bank loans: Evidence from 25 developing countries INTRODUCTIONBank loans are the dominant source of external finance for corporations in most economies across the world (Demirgüç‐Kunt & Levine, ), but limits to credit access remain a worldwide problem today (Banerjee & Duflo, ). Therefore, it is important to investigate the factors affecting bank loans so as to alleviate the financing constraints for enterprises. North () emphasizes the core effect of institutions on transaction contracts, and argues that how institutions affect loan contracts has been a focus of attention in academic research. Taking measurability into consideration, a lot of studies have explored the relationship between formal institutions, especially legal protection for creditors, and bank loans. The results show that the level of legal protection will affect loans in terms of volume, interest rate, term, and collateral requirements (Bae & Goyal, ; Esty & Megginson, ; Hass, Ferreira, & Taci, ).However, most of the aforementioned studies were based on samples from developed countries which have higher‐quality institutions and enforcement. Thus, the applicability of the conclusions to the setting of developing countries is questionable due to the large differences in institutions. For example, in developed countries, a bank will not have to worry about institutional risk when lending to a http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

Institutional environment and bank loans: Evidence from 25 developing countries

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© 2018 John Wiley & Sons Ltd
ISSN
0964-8410
eISSN
1467-8683
D.O.I.
10.1111/corg.12197
Publisher site
See Article on Publisher Site

Abstract

INTRODUCTIONBank loans are the dominant source of external finance for corporations in most economies across the world (Demirgüç‐Kunt & Levine, ), but limits to credit access remain a worldwide problem today (Banerjee & Duflo, ). Therefore, it is important to investigate the factors affecting bank loans so as to alleviate the financing constraints for enterprises. North () emphasizes the core effect of institutions on transaction contracts, and argues that how institutions affect loan contracts has been a focus of attention in academic research. Taking measurability into consideration, a lot of studies have explored the relationship between formal institutions, especially legal protection for creditors, and bank loans. The results show that the level of legal protection will affect loans in terms of volume, interest rate, term, and collateral requirements (Bae & Goyal, ; Esty & Megginson, ; Hass, Ferreira, & Taci, ).However, most of the aforementioned studies were based on samples from developed countries which have higher‐quality institutions and enforcement. Thus, the applicability of the conclusions to the setting of developing countries is questionable due to the large differences in institutions. For example, in developed countries, a bank will not have to worry about institutional risk when lending to a

Journal

Corporate GovernanceWiley

Published: Jan 1, 2018

Keywords: ; ; ;

References

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