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Business Environment and the Incorporation Decision

  • Demirguc-Kunt, Asli
  • Love, Inessa
  • Maksimovic, Vojislav

Using firm-level data from 52 countries, the authors investigate how a country's institutions and business environment affect firms'organizational choices and the effects of organizational form on access to finance and growth. They find that businesses are more likely to choose the corporate form in countries with developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes, and efficient bankruptcy processes. Corporations report fewer financing, legal, and regulatory obstacles than unincorporated firms, and this advantage is greater in countries with more developed institutions and favorable business environments. The authors find some evidence of highergrowth of incorporated businesses in countries with good financial and legal institutions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3317.

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Date of creation: 01 May 2004
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Handle: RePEc:wbk:wbrwps:3317
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  1. Armando Gomes, 2000. "Going Public without Governance: Managerial Reputation Effects," Journal of Finance, American Finance Association, vol. 55(2), pages 615-646, 04.
  2. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
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  7. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
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  9. Butler, Henry N., 1986. "General incorporation in nineteenth century England: Interaction of common law and legislative processes," International Review of Law and Economics, Elsevier, vol. 6(2), pages 169-188, December.
  10. Alan Morrison & William J. Wilhelm, Jr., 2003. "Partnership Firms, Reputation and Human Capital," OFRC Working Papers Series 2003fe02, Oxford Financial Research Centre.
  11. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
  12. 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.
  13. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  14. Jonathan Levin, 2002. "A Theory of Partnerships," Theory workshop papers 505798000000000002, UCLA Department of Economics.
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  21. repec:ner:tilbur:urn:nbn:nl:ui:12-3125505 is not listed on IDEAS
  22. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," World Bank Economic Review, World Bank Group, vol. 14(3), pages 597-605, September.
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  26. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
  27. Anderson, Gary M. & Tollison, Robert D., 1983. "The myth of the corporation as a creation of the state," International Review of Law and Economics, Elsevier, vol. 3(2), pages 107-120, December.
  28. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
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