Financial and legal institutions and firm size

Thorsten Beck, Asli Demirguc-Kunt and Vojislav Maksimovic

No 2997, Policy Research Working Paper Series from The World Bank

Abstract: The authors investigate how a country's financial institutions and the quality of its legal system explain the size attained by its largest industrial firms in a sample of 44 countries. Firm size is positively related to the size of the banking system and the efficiency of the legal system. Thus, the authors find no evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system. But they do find evidence that externally financed firms are smaller in countries that have strong creditor rights and efficient legal systems. This suggests that firms in countries with weak creditor protections are larger in order to internalize the protection of capital investment.

Keywords: Banks&Banking Reform; Payment Systems&Infrastructure; Decentralization; Economic Theory&Research; International Terrorism&Counterterrorism; Economic Theory&Research; Banks&Banking Reform; Small Scale Enterprise; Private Participation in Infrastructure; Microfinance (search for similar items in EconPapers)
Date: 2003-03-31
New Economics Papers: this item is included in nep-fin, nep-mfd and nep-reg
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Citations: View citations in EconPapers (20)

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