| 2001a, Financial and Legal Constraints to Firm Growth: Does Size Matter? World Bank Mimeo (2007) | |||||||||||||||||
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| Abstract: Using a unique firm-level survey data base covering 54 countries, we investigate whether different financial, legal and corruption issues firms report as constraints actually affect their growth rates. Our results show that the extent to which these factors constrain a firm’s growth depends very much on its size and that it is consistently the smallest firms that are most adversely affected by all three constraints. Firm growth is more affected by reported constraints in countries with underdeveloped financial and legal systems and higher corruption. Thus, policy measures to improve financial and legal development and reduce corruption are well justified in promoting firm growth and particularly the development of the small and medium enterprise (SME) sector. However, our evidence also shows that the intuitive descriptors of an “efficient ” legal system are not correlated with the components of the general legal constraint that do predict firm growth. This finding suggests that the mechanism by which the legal systems affects firm performance is not well understood. Our findings also provide evidence that the corruption of bank officials constrains firm growth. This “institutional failure ” should be taken into account when modeling the monitoring role of financial institutions in overcoming market failures due to informational asymmetries. | |||||||||||||||||
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