Legal systems and the financing of working capital

Michael Troilo, Brian R. Walkup, Masato Abe and Seulki Lee

International Review of Economics & Finance, 2019, vol. 64, issue C, 641-656

Abstract: This study builds on the existing law and finance literature by analyzing the impact of legal systems on both the level and the sourcing of working capital. We find that stronger rule of law results in lower levels of working capital, less sourcing from retained earnings, and more sourcing from banks. Firms in common-law regimes have lower levels of working capital and finance it from banks, while firms from civil-law environments rely on retained earnings and other financial institutions for sourcing. The impact of legal origin on both the level and the sourcing of working capital is mixed.

Keywords: Legal systems; Rule of law; Legal tradition; Legal origins; Working capital (search for similar items in EconPapers)
JEL-codes: G28 G38 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:64:y:2019:i:c:p:641-656

DOI: 10.1016/j.iref.2018.01.010

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