Property Rights and Finance

Simon Johnson, John McMillan and Christopher Woodruff

American Economic Review, 2002, vol. 92, issue 5, 1335-1356

Abstract: Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

Date: 2002
Note: DOI: 10.1257/000282802762024539
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Chapter: Property Rights and Finance (2007)
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