Investor Protection and Entry

Enrico Perotti and Paolo Volpin ()
Additional contact information
Paolo Volpin: London Business School

No 07-006/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and industries, we find that (i) entry rates and the total number of producers are positively correlated with investor protection in financially dependent sectors and (ii) countries with more accountable political institutions have better investor protection and lower entry costs. We also find that investor protection is more critical to entry than financial market development. We measure political accountability as access to information. Newspaper readership has much more explanatory power than formal measures of democracies. The effect of diffusion of the press is not due to differences in education or in state ownership of the press. Thus newspaper readership appears to proxy for the degree of informed private scrutiny on political decisions.

Keywords: Financial Development; Investor protection; Entry; Cost of Entry; Political Economy (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2007-01-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://papers.tinbergen.nl/07006.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20070006

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().