IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v58y2003i6p2401-2436.html
   My bibliography  Save this article

Financial Development, Property Rights, and Growth

Author

Listed:
  • Stijn Claessens
  • Luc Laeven

Abstract

In countries with more secure property rights, firms might allocate resources better and consequentially grow faster as the returns on different types of assets are more protected against competitors' actions. Using data on sectoral value added for a large number of countries, we find evidence consistent with better property rights leading to higher growth through improved asset allocation. Quantitatively, the growth effect is as large as that of improved access to financing due to greater financial development. Our results are robust using various samples and specifications, including controlling for growth opportunities.

Suggested Citation

  • Stijn Claessens & Luc Laeven, 2003. "Financial Development, Property Rights, and Growth," Journal of Finance, American Finance Association, vol. 58(6), pages 2401-2436, December.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:6:p:2401-2436
    DOI: 10.1046/j.1540-6261.2003.00610.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1046/j.1540-6261.2003.00610.x
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    3. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    5. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
    6. repec:hrv:faseco:30728041 is not listed on IDEAS
    7. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2002. "The Guarantees of Freedom," Harvard Institute of Economic Research Working Papers 1943, Harvard - Institute of Economic Research.
    9. Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, February.
    10. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    11. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    12. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    13. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    14. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    15. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    16. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
    17. Laurence Booth & Varouj Aivazian & Asli Demirguc‐Kunt & Vojislav Maksimovic, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    18. Mansfield, E., 1995. "Intellectual Property Protection, Direct Investment, and technology Transfer, Germany, Japan, and the United States," Papers 27, World Bank - International Finance Corporation.
    19. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    20. Scott Stern & Michael E. Porter & Jeffrey L. Furman, 2000. "The Determinants of National Innovative Capacity," NBER Working Papers 7876, National Bureau of Economic Research, Inc.
    21. Michael S. Long & Ileen B. Malitz, 1983. "Investment Patterns and Financial Leverage," NBER Working Papers 1145, National Bureau of Economic Research, Inc.
    22. Stephen Nickell & D Nicolitsas, 1996. "Does Innovation Encourage Investment in Fixed Capital?," CEP Discussion Papers dp0309, Centre for Economic Performance, LSE.
    23. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    24. Ross Levine, 1999. "Financial development and growth: where do we stand?," Estudios de Economia, University of Chile, Department of Economics, vol. 26(2 Year 19), pages 113-136, December.
    25. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    26. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-937, October.
    27. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    28. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    2. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    3. Alves, Paulo F. Pereira & Ferreira, Miguel A., 2011. "Capital structure and law around the world," Journal of Multinational Financial Management, Elsevier, vol. 21(3), pages 119-150, July.
    4. Todd Mitton, 2008. "Why Have Debt Ratios Increased for Firms in Emerging Markets?," European Financial Management, European Financial Management Association, vol. 14(1), pages 127-151, January.
    5. Zhiyong An, 2013. "Private Property Rights, Investment Patterns, and Asset Structure," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 481-495, November.
    6. Massimiliano Affinito, 2011. "Convergence clubs, the euro-area rank and the relationship between banking and real convergence," Temi di discussione (Economic working papers) 809, Bank of Italy, Economic Research and International Relations Area.
    7. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    8. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
    9. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    11. Mendoza, Ronald U. & Canare, Tristan A. & Ang, Alvin, 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Research Paper Series DP 2015-37, Philippine Institute for Development Studies.
    12. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    13. April M. Knill, 2013. "Does Foreign Portfolio Investment Reach Small Listed Firms?," European Financial Management, European Financial Management Association, vol. 19(2), pages 251-303, March.
    14. Solomon Tadesse, 2005. "Financial Development and Technology," William Davidson Institute Working Papers Series wp749, William Davidson Institute at the University of Michigan.
    15. Utrero-Gonzalez, Natalia, 2007. "Banking regulation, institutional framework and capital structure: International evidence from industry data," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(4), pages 481-506, September.
    16. Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
    17. Gründler, Klaus & Weitzel, Jan, 2013. "The financial sector and economic growth in a panel of countries," Discussion Paper Series 123, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    18. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    19. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    20. Zhang, Qiong & Shi, Yupeng & He, Angda & Wen, Xueting, 2017. "Property rights security and firm survival: Micro-data evidence from China," China Economic Review, Elsevier, vol. 44(C), pages 296-310.

    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:58:y:2003:i:6:p:2401-2436. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.