Abstract
This study re-examines the theory of legal origin on the basis of a new longitudinal dataset on creditor protection for four OECD countries over a long time span 1970-2005. It observes that civil law countries (France and Germany) provided a higher level of protection to creditors on the issue of debtor control, while common law countries (UK and USA) provided better creditor protection on the issues of creditors’ contract rights and insolvency rights. Through panel causality test and dynamic panel data modelling, our study shows that laws strengthening creditors’ control over debtors have a long-term favourable effect on credit market expansion, while, in contrast, the credit-contract component of creditor protection laws has the opposite effect.
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