Judicial risk and credit market performance
Subtitle: micro evidence from Brazilian payroll loans
By: Ana Carla A. Costa, Joao M.P. De Mello.
Contributors: Mello, Joao M. P. De.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 12252.; Working paper series (National Bureau of Economic Research) -- working paper no. 12252.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 31
Subjects: Payroll deductions -- Law and legislation -- Economic aspects -- Brazil; Loans -- Law and legislation -- Economic aspects -- Brazil
Description: "A large body of literature has stressed the institution-development nexus as critical in explaining differences in countries' economic performance.  The empirical evidence, however, has been mainly at the aggregate level, associating macro performance with measures of quality of institutions.  This paper, by relating a judicial decision on the legality of payroll loans in Brazil to bank-level decision variables, provides micro evidence on how creditor legal protection affects market performance.  Payroll loans are personal loans with principal and interests payments directly deducted from the borrowers' payroll check, which, in practice, makes a collateral out of future income.  In June 2004, a high-level federal court upheld a regional court ruling that had declared payroll deduction illegal.  Using personal loans without payroll deduction as a control group, we assess whether the ruling had an impact on market performance.  Evidence indicates that it had an adverse impact on risk perception, interest rates, and amount lent"--National Bureau of Economic Research web site.
Notes: "May 2006."

Includes bibliographical references (p. 30-31).

Also available in PDF from the NBER world wide web site (www.nber.org).