Law and Firms' Access to Finance
Why does a country's legal origin influence its firms' access to finance? Using data from over 4,000 firms in 38 countries, the authors show that firms in countries with French legal origin face significantly higher obstacles in accessing...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/01/3172100/law-firms-access-finance http://hdl.handle.net/10986/15630 |
| Summary: | Why does a country's legal origin
influence its firms' access to finance? Using data from
over 4,000 firms in 38 countries, the authors show that
firms in countries with French legal origin face
significantly higher obstacles in accessing external finance
than firms in common law countries. Next, their results
indicate that French legal origin countries tend to have (1)
less adaptable legal systems, as defined by the degree to
which case law and principles of equity rather than simply
statutory law are accepted foundations of legal decisions,
and (2) less politically independent judiciaries, as defined
by the degree of tenure of supreme court judges and their
jurisdiction over cases involving the government. Finally,
the authors find that the adaptability of a country's
legal system is more important for explaining the obstacles
that firms face in contracting for external finance than the
political independence of the judiciary. So, they
distinguish among competing explanations of why law matters
for financial development by empirically documenting the
links running from international differences in legal origin
to the operation of the financial system at the firm level. |
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