Financial and Legal Institutions and Firm Size

Financial and Legal Institutions and Firm Size

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 bankin...

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Bibliographic Details
Main Authors:	Beck, Thorsten, Demirguc-Kunt, Asli, Maksimovic, Vojislav
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTING ADVERSE SELECTION AGENCY PROBLEMS ASSETS BANK CREDIT BANK MONITORING BANKING SECTOR BANKING SECTOR DEVELOPMENT BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKS BENCHMARK CAPITAL MARKETS CAPITALIZATION COMMERCIAL BANKS COMPARATIVE ADVANTAGE CONGLOMERATES CONTRACT ENFORCEMENT CORPORATE FINANCE CORPORATION CORPORATIONS DISEQUILIBRIUM DIVERSIFICATION DIVIDEND POLICY ECONOMIES OF SCALE ENTREPRENEURS EQUILIBRIUM EXPORTS FINANCIAL INSTITUTIONS FINANCIAL PLANNING FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STRUCTURE FINANCIAL SYSTEMS FIRM SIZE FIRMS GDP GDP PER CAPITA GROSS DOMESTIC PRODUCT GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE HUMAN CAPITAL INEFFICIENCY INFLATION INFLATION RATE INSTITUTIONAL DEVELOPMENT LAWS LEGAL PROTECTION MEDIUM ENTERPRISES NATIONAL INCOME NET SALES OLIGOPOLY OPEN ECONOMIES OPPORTUNITY COSTS ORGANIZATIONAL CAPITAL PER CAPITA INCOMES PRIVATE BANKS PRODUCTIVITY PROFIT RATE PROFITABILITY REAL GDP REORGANIZATION RESOURCE ALLOCATION RETURN ON ASSETS SIZE OF FIRMS SMALL FIRMS TOTAL OUTPUT WAGES WEALTH FINANCIAL INSTITUTIONS LEGAL FRAMEWORK INDUSTRIAL CAPACITY LEGAL & REGULATORY FRAMEWORK EXTERNAL FINANCE CREDITOR COUNTRIES CAPITAL INVESTMENTS PROTECTION SYSTEMS
Online Access:	http://documents.worldbank.org/curated/en/2003/03/2181644/financial-legal-institutions-firm-size http://hdl.handle.net/10986/19157

Description
Summary:	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.