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Does (average) size matter? Court enforcement, business demography and firm growth

Listed author(s):
  • Miguel García-Posada

    ()

  • Juan Mora-Sanguinetti

    ()

Previous literature finds that the quality of judicial enforcement has a positive impact on average firm size, but it has not disentangled its effect on the growth of incumbent firms from that on business demography. This distinction is crucial, as entrants are generally smaller than incumbents, but both high entry rates and high firm growth are associated with better economic performance. This paper fills this gap, finding that judicial efficacy fosters the growth of incumbents and promotes entry in Spain. The paper also shows for the first time that the specific type of judicial procedure that companies face in case of a conflict, rather than the overall functioning of courts, is the relevant matter. Specifically, judicial efficacy at the declaratory stage (when a debt is verified by a judge) has a positive impact on both firm growth and entry, while it has no impact at the execution stage (when the judge requires its payment). Copyright Springer Science+Business Media New York 2015

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File URL: http://hdl.handle.net/10.1007/s11187-014-9615-z
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Article provided by Springer in its journal Small Business Economics.

Volume (Year): 44 (2015)
Issue (Month): 3 (March)
Pages: 639-669

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Handle: RePEc:kap:sbusec:v:44:y:2015:i:3:p:639-669
DOI: 10.1007/s11187-014-9615-z
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