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Zoom URL: https://uni-frankfurt.zoom-x.de/j/66991794966?pwd=F5B8bZHevP9J1uz9LAWZAKgzbEtziy.1
Meeting ID: 669 9179 4966
Password: 504865

Abstract:

In this paper, we examine how legal uncertainty affects economic activity. We develop a model
that distinguishes between three types of legal uncertainty, classifying them as either idiosyncratic
or systematic. We test the model’s predictions using micro-level data on bankruptcy
judges and corporate loans in Korea. To compute time-varying court-level measures of legal
uncertainty, we exploit random case assignment to judges and exogenous judge rotations
in the judicial system. Our results show that firms are more likely to file for restructuring in
courts with lower levels of legal uncertainty. We also find that higher levels of legal uncertainty
result in smaller credit markets, primarily for high-risk firms. Our analysis further indicates
that credit supply is less responsive to idiosyncratic legal uncertainty than credit demand since
banks can diversify idiosyncratic legal uncertainty across borrowers.