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Investment and Institutions

Author

Listed:
  • Yishay Yafeh

    (Hebrew University)

  • Kenichi Ueda

    (IMF)

  • Stijn Claessens

    (IMF)

Abstract

We study how financial systems and institutional environments affect investment efficiency using a sample of some 300,000 firm-years from 48 countries. Based on a canonical investment model, we identify two possible channels by which institutional environments may affect investment: firm-level financial frictions and the macro-level required rate of return. We find that a good institutional environment, in particular strong corporate governance, reduces financial frictions and lowers the required rate of return, thereby enhancing efficiency in capital allocation. This result is broadly consistent with previous literature, but the mechanism identified here is novel and more precise.

Suggested Citation

  • Yishay Yafeh & Kenichi Ueda & Stijn Claessens, 2010. "Investment and Institutions," 2010 Meeting Papers 513, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:513
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    References listed on IDEAS

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    Cited by:

    1. Art Durnev & Sergei Guriev, 2007. "The Resource Curse: A Corporate Transparency Channel," Working Papers w0108, Center for Economic and Financial Research (CEFIR).
    2. Kizito Uyi Ehigiamusoe & Mohamad Shaharudin Samsurijan, 2021. "What matters for finance‐growth nexus? A critical survey of macroeconomic stability, institutions, financial and economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5302-5320, October.
    3. Zofia Gródek-Szostak & Jadwiga Adamczyk & Małgorzata Luc & Marcin Suder & Justyna Tora & Karolina Kotulewicz-Wisińska & Wojciech Zysk & Anna Szeląg-Sikora, 2022. "Hard Cash in Hard Times—The Effect of Institutional Support for Businesses Shaken by COVID-19," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    4. repec:spo:wpmain:info:hdl:2441/5um2bhne3f862raaulvoogm15e is not listed on IDEAS
    5. Amr Khafagy & Mauro Vigani, 2023. "External finance and agricultural productivity growth," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 448-472, March.
    6. repec:hal:spmain:info:hdl:2441/5um2bhne3f862raaulvoogm15e is not listed on IDEAS
    7. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.

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