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Financial markets and firm size: The role of employment protection laws and barriers to entrepreneurship

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  • Raquel Fonseca
  • Natalia Utrero

Abstract

This article provides evidence on the institutional determinants of firm size for the period 1980–1998. Using a comprehensive longitudinal database across 29 industrial sectors in 15 Organisation for Economic Co-operation and Development (OECD) countries, we study how labour regulations and barriers to entrepreneurship (BE) affect industrial organization in the presence of capital market frictions. We show that strict employment protection laws (EPL) and high BE negatively affect firm size in sectors that are more dependent on external funds. Our findings demonstrate that the interaction between market regulations and financial market imperfections help to explain some of the differences in firm structure across countries.

Suggested Citation

  • Raquel Fonseca & Natalia Utrero, 2017. "Financial markets and firm size: The role of employment protection laws and barriers to entrepreneurship," Applied Economics, Taylor & Francis Journals, vol. 49(26), pages 2515-2531, June.
  • Handle: RePEc:taf:applec:v:49:y:2017:i:26:p:2515-2531
    DOI: 10.1080/00036846.2016.1243209
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