This dissertation examines the effect of the legal environment on access to several types
of external finance, and on the decision to invest, for the 3 countries that make up the
East African Community (EAC). The results suggest that well defined creditor rights are
positively correlated with access to bank loans. Strong creditor rights places pressure on
firms to keep good quality financial records. More lending takes place in this
environment. A good quality legal system also improves access to non-bank finance,
namely trade credit and leasing finance. The analysis demonstrates that collateral in the
form of machinery and equipment improves access to bank finance. Collateral appears to
be of greater importance when legal enforcement costs are relatively low and
information asymmetry is more acute. The results also show that the property rights
environment is important for investment. However, the protection of property rights has a
more meaningful effect on investment in an environment where the costs of corruption
are lower and courts are more efficient. Access to bank finance has a significant positive
effect on investment. Thus, a legal system that improves the flow of funds from banks to
firms promotes growth enhancing activities. Internal sources of finance are also found to
be important for investment. It is recommended that strong emphasis is placed on
improving the laws protecting the rights of creditors over property pledged as collateral
and over information they can obtain from debtors. Debtor rights over assets in their
possession should also be strengthened.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/4789 |
| Date | 08 May 2008 |
| Creators | Kaniki, Sheshangai |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 1063461 bytes, 46711 bytes, application/pdf, application/pdf, application/pdf, application/pdf |
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