Financial and Legal Constraints to Growth: Does Firm Size Matter?
Article first published online: 20 JUL 2005
The Journal of Finance
Volume 60, Issue 1, pages 137–177, February 2005
How to Cite
BECK, T., DEMIRGÜÇ-KUNT, A. and MAKSIMOVIC, V. (2005), Financial and Legal Constraints to Growth: Does Firm Size Matter?. The Journal of Finance, 60: 137–177. doi: 10.1111/j.1540-6261.2005.00727.x
- Issue published online: 20 JUL 2005
- Article first published online: 20 JUL 2005
Using a unique firm-level survey database covering 54 countries, we investigate the effect of financial, legal, and corruption problems on firms' growth rates. Whether these factors constrain growth depends on firm size. It is consistently the smallest firms that are most constrained. Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is again the small firms that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. We also provide evidence that the corruption of bank officials constrains firm growth.