The real effects of judicial enforcement: evidence from Italy

  • I analyze the real effects of the quality of the judicial enforcement by showing that an increase in the average duration of civil proceedings reduces firms' employment. I exploit a reorganization of court districts in Italy as an exogenous shock to court productivity and, using an instrumental variable approach, estimate an elasticity of employment to average trial length between -0.24 and -0.29. These results are very different from OLS estimates which do not control for endogeneity, and suggest that stronger law enforcement eases financing constraints. The effects are more pronounced in highly levered and more financially dependent firms, and appear to affect mainly firms in less financially developed areas. Revenues respond more slowly than employment to the reform, and wages fall as the judiciary improves. There is no evidence of effects on capital structure and profitability. These results offer a more complete picture of the interplay between legal institutions and real economic outcomes.

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Author:Vincenzo PezoneORCiD
Parent Title (English):SAFE working paper series ; No. 192
Series (Serial Number):SAFE working paper (192)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2018/01/30
Tag:duration of civil proceedings; finance and employment; financing constraint; law enforcement
Issue:Friday 8th December, 2017, 13:33
Page Number:52
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht