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Financial and legal institutions and firm size

Author

Listed:
  • Beck, Thorsten
  • Demirguc-Kunt, Asli
  • Maksimovic, Vojislav

Abstract

The authors investigate how a country's financial institutions and the quality of its legal system explain the size attained by its largest industrial firms in a sample of 44 countries. Firm size is positively related to the size of the banking system and the efficiency of the legal system. Thus, the authors find no evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system. But they do find evidence that externally financed firms are smaller in countries that have strong creditor rights and efficient legal systems. This suggests that firms in countries with weak creditor protections are larger in order to internalize the protection of capital investment.

Suggested Citation

  • Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2003. "Financial and legal institutions and firm size," Policy Research Working Paper Series 2997, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2997
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    Citations

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    Cited by:

    1. Chen, Yan, 2007. "中小投资者保护、股权结构与公司价值
      [Protection of Minority Shareholders, Ownership Structure and Corporate Valuation]
      ," MPRA Paper 12427, University Library of Munich, Germany, revised Jun 2008.
    2. Thorsten Beck, 2003. "Small and medium enterprises, growth, and poverty : cross-country evidence," Policy Research Working Paper Series 3178, The World Bank.
    3. Arturo Galindo & Alejandro Micco, 2005. "Creditor Protection and Credit Volatility," Research Department Publications 4401, Inter-American Development Bank, Research Department.
    4. HansK. Hvide, 2009. "The Quality of Entrepreneurs," Economic Journal, Royal Economic Society, vol. 119(539), pages 1010-1035, July.
    5. Thorsten Beck & Asli Demirgüç-Kunt, 2004. "SMEs, Growth, and Poverty," World Bank Other Operational Studies 11278, The World Bank.
    6. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    7. Arturo Galindo & Alejandro Micco, 2005. "Protección a los acreedores e inestabilidad del crédito," Research Department Publications 4402, Inter-American Development Bank, Research Department.
    8. Beck, Thorsten & Demirguc-Kant, Asl' & Maksimovic, Vojislav, 2003. "Bank competition, financing obstacles, and access to credit," Policy Research Working Paper Series 2996, The World Bank.
    9. Kim, Dong-Hyeon & Lin, Shu-Chin & Suen, Yu-Bo, 2013. "Investment, trade openness and foreign direct investment: Social capability matters," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 56-69.
    10. Aggarwal, Raj & Kyaw, NyoNyo A., 2008. "Internal capital networks as a source of MNC competitive advantage: Evidence from foreign subsidiary capital structure decisions," Research in International Business and Finance, Elsevier, vol. 22(3), pages 409-439, September.
    11. Roxana Gutierrez-Romero & Luciana Méndez Errico, 2015. "The Long-Term Impact of Inequality on Entrepreneurship and Job Creation," Working Papers wpdea1501, Department of Applied Economics at Universitat Autonoma of Barcelona.
    12. Brown, Philip & How, Janice C.Y. & Verhoeven, Peter, 2008. "The accuracy of analysts' dividend forecasts around the world," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 411-435, September.
    13. Hvide, Hans K., 2004. "Firm Size and the Quality of Entrepreneurs," Discussion Papers 2004/9, Norwegian School of Economics, Department of Business and Management Science.
    14. Beck, Thorsten & Asl Demirguc-Kunt & Maksimovic, Vojislav, 2002. "Financing patterns around the world : the role of institutions," Policy Research Working Paper Series 2905, The World Bank.
    15. Francesca Gagliardi, 2009. "Financial development and the growth of cooperative firms," Small Business Economics, Springer, vol. 32(4), pages 439-464, April.

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