Extract
This paper examines the importance of courts for trade credit amongst manufacturing firms
in the East African community (EAC). The paper finds that high enforcement costs do not
deter the use of courts to settle disputes associated with trade credit. The analysis suggests that
when courts function efficiently they are likely to be a more effective deterrent to opportunistic
behaviour relative to non-court mechanisms. Further, the paper finds that when enforcement
costs are low firms that have confidence in the judiciary to enforce their property rights are more
likely to provide trade credit. The paper also considers whether firm characteristics affect the
way firms perceive the judiciary’s ability to enforce property rights in business related disputes.
Where judicial enforcement is efficient firm characteristics are not important. However, when
enforcement costs are high, firm characteristics are important implying that firms are capable of swaying judicial decisions in their favour.
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