Does (average) size matter? Court enforcement, business demography and firm growth

Miguel Garcia-Posada and Juan Mora-Sanguinetti

Small Business Economics, 2015, vol. 44, issue 3, 639-669

Abstract: Previous literature finds that the quality of judicial enforcement has a positive impact on average firm size, but it has not disentangled its effect on the growth of incumbent firms from that on business demography. This distinction is crucial, as entrants are generally smaller than incumbents, but both high entry rates and high firm growth are associated with better economic performance. This paper fills this gap, finding that judicial efficacy fosters the growth of incumbents and promotes entry in Spain. The paper also shows for the first time that the specific type of judicial procedure that companies face in case of a conflict, rather than the overall functioning of courts, is the relevant matter. Specifically, judicial efficacy at the declaratory stage (when a debt is verified by a judge) has a positive impact on both firm growth and entry, while it has no impact at the execution stage (when the judge requires its payment). Copyright Springer Science+Business Media New York 2015

Keywords: Enforcement institutions; Judicial efficacy; Firm size; Firm growth; Business demography; D23; K41; K12; L11; L25; L26; O12; R12 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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DOI: 10.1007/s11187-014-9615-z

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