CAIRN-INT.INFO : International Edition

In terms of banking regulation, the extant literature underlines the capacity of banks to adjust credit to legislative changes. Bordo et al. [2016] found that policy uncertainty around recessions can be mitigated by limiting ad hoc policy changes and adopting state-contingent policies. Hu and Gong [2019] also confirmed the mitigation role of law enactment using a sample of 19 major economies covering the period from 2005 to 2011; their empirical analysis presents evidence that microprudential and macroprudential regulations can mitigate the harmful effects of economic policy uncertainty on net loans’ growth rates. However, a consistent legislative agenda may require a certain degree of institutional quality. In this sense, loan costs are higher when banks (Francis et al. [2014]) and firms (Bradley et al. [2016]) are subject to severe political uncertainties. Consequently, banking systems seem to adjust lending policies depending on the changes in the institutional regulatory environment. Moreover, uncertainty may emerge when laws are vague or incomplete. Gissler et al. [2016] pointed out that regulatory uncertainty can contract credit. By examining minimum requirement laws governing mortgage lenders’ decisions to extend credit, they noticed a lack of regulation specifying the borrower’s debt-to-income ratio values; for 18 months, banks in United States of America (U.S.) were uncertain about those values. As a result, the higher regulatory uncertainty severely reduced lending during 2011 and 2013. Mortgage lending expanded once the Consumer Financial Protection Bureau published the final requirements…


This study investigates the relationship between legislative inflation and private credit at the national level. Using a panel data set of 33 countries covering 2004–2016, we confirm that government effectiveness moderates the relationship between the enacting of new central laws and domestic credit. In environments with more effective governments, legislative inflation can lead to the expansion of credit. Consequently, banking systems seem to perceive severe changes to the national legislation as ongoing improvements to replace inefficient or obsolete laws. JEL codes: G21, G28, K10

  • private credit
  • banks
  • legislative inflation
  • new laws
  • institutions
Nicolae Stef
Associate Professor, CEREN EA 7477, Burgundy School of Business, Université Bourgogne Franche-Comté, Department of Accounting, Finance & Law, 29 Rue Sambin, 21000 Dijon, France. E-mail:
Jean-Loup Soula
Corresponding author Associate Professor, LaRGE Research Center, EM Strasbourg Business School, University of Strasbourg, 61, avenue de la Forêt-Noire 67 085 STRASBOURG CEDEX France. E-mail:, Tel: +33 368 858 723
Alexandre Pourchet
Associate Professor, Audencia Business School, France.
This is the latest publication of the author on cairn.
This is the latest publication of the author on cairn.
This is the latest publication of the author on cairn.
You still have to read 97% of this article
Purchase full-text 10,00€ 28 pages, electronic only
(html and pdf)
add_shopping_cart Add to cart
Other option
Member of a subscribed institution ? business Authenticate
Uploaded on on 30/11/-0001
Distribution électronique pour Dalloz © Dalloz. Tous droits réservés pour tous pays. Il est interdit, sauf accord préalable et écrit de l’éditeur, de reproduire (notamment par photocopie) partiellement ou totalement le présent article, de le stocker dans une banque de données ou de le communiquer au public sous quelque forme et de quelque manière que ce soit.
Loading... Please wait