Moroccan Company Law Reform and Manufacturing Firms’ Access to Bank Credit: a Before/after Panel Evaluation

In 2001, Morocco made a radical change to its company law regime: it replaced a company law dating from 19thcentury France with modern standards of corporate governance and accountability. This article analyses that reform and evaluates its impact upon manufacturing firms’ access to bank credit. Panel data from 2000 and 2004 is used to test the effect of a firm’s legal obligations upon the provision of bank overdraft facilities. It is found that such legal obligations are significant, and this is robust when controlling for firm fixed effects. A heterogeneous-treatment specification suggests that the more onerous legal status is more valuable for younger firms. Broadly, this supports claims that legal systems ensuring high corporate governance standards are important in reassuring lenders in developing countries. However, the paper adds a caveat: choosing more onerous legal obligations was not significantly more valuable in 2004 than in 2000, despite the legal reform. This suggests that, even several years after the reform process, banks may not have appreciated the practical significance of the new legal regime. ∗D.Phil student: Department of Economics, the Centre for the Study of African Economies and All Souls College, University of Oxford. This will hopefully form part my D.Phil thesis, which is supervised by Professor Marcel Fafchamps; the work would not have been possible without his very generous assistance. A number of others have been very helpful; more acknowledgements etc to follow later. As part of this research, I visited Morocco in 2006 to speak with policymakers, bankers and members of the business community; funding for the trip was generously provided by the George Webb Medley Fund (Department of Economics, Oxford). E-mail: [email protected].