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Property Rights and Finance

  • Simon Johnson
  • John McMillan
  • Christopher Woodruff

Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282802762024539
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 5 (December)
Pages: 1335-1356

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Handle: RePEc:aea:aecrev:v:92:y:2002:i:5:p:1335-1356
Note: DOI: 10.1257/000282802762024539
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