Abstract
AbstractManuscript Type:EmpiricalResearch Question/Issue:This study tries to verify the impact of institutional environment, namely legal protection, law enforcement, trust and religion, on bank loans in the context of developing countries. In addition, we investigate the interactive effect of formal and informal institutions.Research Findings/Insights:Using survey data on enterprises from 25 developing countries, we find that institutional environment can significantly affect bank loans in developing countries. Compared with formal institutions, informal ones are relatively efficient at alleviating enterprises’ financial constraints, while law enforcement is more important than legal protection within the set of formal institutions. The split‐sample tests indicate that informal and formal institutions have substitutive effects on firms’ loan financing.Theoretical/Academic Implications:This study provides evidence of the impact of institutions on loan contracts in developing countries and sheds light on the importance of law enforcement and informal institutions. It suggests new avenues of research on the loan contract from a neo‐institutional perspective.Practitioner/Policy Implications:This study offers inspiration to the governments of developing countries interested in promoting enterprise development. In addition, it provides efficient methods that entrepreneurs can use to reduce the financing constraints on enterprises in the context of lower legal protection.
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