The paper explores how legal change affects lending behavior in twelve transition economies of Central and Eastern Europe. In contrast to previous studies, we use bank level data rather than aggregate data, which allow us to control for country level heterogeneity and to analyze the effect of legal change on different types of lenders. Using differences-in-differences methodology to analyze the within country variation of changes in creditor rights protection, we ﬁnd that lending volume increases subsequent to legal change. Further, we ﬁnd that Collateral law matters more for development of ﬁnancial markets as compared to Bankruptcy law. We also ﬁnd that new entrants respond more strongly to legal change than do incumbents. In particular, foreign owned banks extend their lending volume substantially more than do domestic banks, be they private or state owned. The same holds when we use foreign green ﬁeld banks as proxies for new entrants. These results are robust after controlling for a wide variety of possibilities
Vig, Vikrant. "How Law Affects Lending." Chazen Web Journal of International Business (2005). http://www.gsb.columbia.edu/chazen/webjournal.
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