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Law, Endowment and Inequality in Access to Finance

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  • Armitage, Seth
  • Hou, Wenxuan
  • Liu, Xianda
  • Wang, Cong

Abstract

Theoretical work suggests an ambiguous relationship between the strength of institutions and the distribution of access to finance. Using a sample of listed firms from 70 countries, this study constructs country-level measures of inequality in access to external finance, and explores its relation to institutions. We show that inequality of access is positively related to financial development as well as inequality in the distribution of firm size, firm revenue, and residents’ incomes. Countries with stronger investor protection for equity and debt have higher inequality in equity and debt financing respectively, presumably as a result of higher efficiency in fund allocation. Finally, we find that the historical determinants of institutions, including the civil law tradition and the disease environment encountered by colonizers, are negatively related to inequality in access to external finance.

Suggested Citation

  • Armitage, Seth & Hou, Wenxuan & Liu, Xianda & Wang, Cong, 2021. "Law, Endowment and Inequality in Access to Finance," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320303548
    DOI: 10.1016/j.frl.2020.101540
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    More about this item

    Keywords

    Capital concentration; Endowment; External financing; Financial development; Investor Protection; Inequality; law;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • K2 - Law and Economics - - Regulation and Business Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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