Financial and Legal Constraints to Firm Growth: Does Size Matter?

By Thorsten Beck, Asli Demirgüç-Kunt, Vojislav Maksimovic. 2002

561 citations recorded by the source corpus.

Using a unique firm-level survey data base, covering fifty four countries, the authors investigate whether different financial, legal, and corruptionissues that firms report as constraints, actually affect their growth rates. The 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 these constraints. Firm growth is more affected by reported constraints in countries with underdeveloped financial, and legal systems, and higher corruption. So, policy measures to improve financial, and legal development, and reduce corruption are well justified in promoting firm growth, particularly the development of the small, and medium enterprise sector. But the evidence also shows that the intuitive descriptors of an"efficient"legal system, are not correlated with the components of the general legal constraints that predict firm growth. This finding suggests that the mechanism by which the legal system affects firm performance, is not well understood. The authors'findings also provide evidence that the corruption of bank officials, constraints 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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/ada4ac8a20c88a9928ef9db5c7b6c77a4cd4448b

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Finance

Citations in the corpus

Bank Competition and Access to Finance: International Evidence (2004, unknown): “Beck, Demirgüç-Kunt, and Maksimovic (2001a) explore the effects of financing and legal obstacles as well as corruption on firm growth, using the WBES database.”
Financing Firms in India (2006, unknown): “Most existing research (e.g., Demirgüç-Kunt and Maksimovic (1998); Beck, Demirgüç-Kunt and Maksimovic (2005, 2008); Ayyagari et al. (2009)) characterizes the role of alternative finance as “picking up the slack” of bank and market finance, and thus it is more costly.”
Bank Supervision and Corruption in Lending (2006, background): “…In terms of the fit, the Pseudo R-squares range between five and nine percent, which is high for these types of crossfirm empirical studies (e.g., Beck et al., 2005) B. Robustness to controlling for other country factors Although the Table II results hold when controlling for an array of…”
Credit Constraints, Heterogeneous Firms and International Trade (2013, unknown): “Prior evidence suggests that smaller firms are more credit constrained (e.g. Beck et al. 2005; Forbes 2007).”
Are finance constraints hindering the growth of SMEs in Europe (2003, background): “Beck et al. (2002), among others, find in a cross-country study that underdeveloped financial and legal systems impede firm growth.”
Relationship Banking and SMEs: A Theoretical Analysis (2006, background): “Nevertheless, it seems to be a global phenomenon that SMEs are confronted with relatively harsh credit constraints (Beck and Maksimovic 2002; European Commission 2002; Beck et. al.”
Small and medium-size enterprises: Access to finance as a growth constraint (2006, methodology): “Using the WBES, Beck et al. (2005c) show that the effect of growth obstacles on firm growth is smaller in countries with better-developed financial and legal systems.”
Factors fostering academics to start up new ventures: an assessment of Italian founders’ incentives (2009, unknown): “Firstly, different studies show that the level of financial development makes growth and expansion possible and that these effects are particularly relevant for small and young firms ( Beck et al. 2005 ).”