The Quality of the Legal System, Firm Ownership, and Firm Size
Employment in developing countries is disproportionately concentrated in very small firms. The authors examine the extent to which the distribution of firm size is related to the quality of the legal system using data from Mexico. They combine Luca...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/03/4065898/quality-legal-system-firm-ownership-firm-size http://hdl.handle.net/10986/14120 |
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okr-10986-141202021-04-23T14:03:20Z The Quality of the Legal System, Firm Ownership, and Firm Size Laeven, Luc Woodruff, Christopher ACCOUNTING ACCOUNTING SYSTEMS AGRICULTURAL PRODUCTION BANKING SYSTEMS CAPITAL EMPLOYED CAPITAL MARKETS COAL CONTRACT ENFORCEMENT CORPORATION CORPORATIONS COST OF CAPITAL COUNSEL DEBT EMPLOYMENT ENTREPRENEURS ENTREPRENEURSHIP EQUILIBRIUM EQUITY INVESTMENTS EXPANSION FIRM SIZE FISHING FIXED COSTS HUMAN CAPITAL INCOME INTANGIBLE ASSETS LAWS LAWYERS LEGAL PROTECTION LEGISLATION MARGINAL PRODUCT NEW ENTRANTS OIL PRODUCERS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS RETURNS TO SCALE SIZE OF FIRMS SMALL FIRMS WAGE RATES EMPLOYMENT COMPANIES PRIVATE ENTERPRISES LEGAL SYSTEMS ENTREPRENEURS EMPLOYERS PROPRIETORSHIPS JUSTICE ENFORCEMENT INDIGENOUS PEOPLES EMPLOYMENT NARCOTICS TRAFFIC Employment in developing countries is disproportionately concentrated in very small firms. The authors examine the extent to which the distribution of firm size is related to the quality of the legal system using data from Mexico. They combine Lucas' (1978) model of firm size with Himmelberg, Hubbard, and Love's (2001) consideration of idiosyncratic risk in a framework in which the distribution of entrepreneurial talent and aversion to idiosyncratic risk combine to determine the optimal size of firms. Their data allows them to focus on the differential impact of the legal system on proprietorships and corporations. Moreover, by focusing on firms in a single country, the data draw attention to the importance of variation in the administration of justice and the enforcement of legal verdicts. The authors find that Mexican states with more effective legal systems have larger firms. A one-standard deviation improvement in the quality of the legal system increases the average firm size by about 10-15 percent. The impact of the legal system is greatest in sectors in which proprietorships dominate. This pattern is consistent with better legal systems increasing the investment of firm owners by reducing the idiosyncratic risk they face. All of these findings are upheld when the authors instrument for institutional variables using the log of indigenous population in 1900 and the active presence of the drug trade in the state. 2013-06-21T18:06:37Z 2013-06-21T18:06:37Z 2004-03 http://documents.worldbank.org/curated/en/2004/03/4065898/quality-legal-system-firm-ownership-firm-size http://hdl.handle.net/10986/14120 English en_US Policy Research Working Paper;No.3246 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean Mexico |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ACCOUNTING SYSTEMS AGRICULTURAL PRODUCTION BANKING SYSTEMS CAPITAL EMPLOYED CAPITAL MARKETS COAL CONTRACT ENFORCEMENT CORPORATION CORPORATIONS COST OF CAPITAL COUNSEL DEBT EMPLOYMENT ENTREPRENEURS ENTREPRENEURSHIP EQUILIBRIUM EQUITY INVESTMENTS EXPANSION FIRM SIZE FISHING FIXED COSTS HUMAN CAPITAL INCOME INTANGIBLE ASSETS LAWS LAWYERS LEGAL PROTECTION LEGISLATION MARGINAL PRODUCT NEW ENTRANTS OIL PRODUCERS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS RETURNS TO SCALE SIZE OF FIRMS SMALL FIRMS WAGE RATES EMPLOYMENT COMPANIES PRIVATE ENTERPRISES LEGAL SYSTEMS ENTREPRENEURS EMPLOYERS PROPRIETORSHIPS JUSTICE ENFORCEMENT INDIGENOUS PEOPLES EMPLOYMENT NARCOTICS TRAFFIC |
| spellingShingle |
ACCOUNTING ACCOUNTING SYSTEMS AGRICULTURAL PRODUCTION BANKING SYSTEMS CAPITAL EMPLOYED CAPITAL MARKETS COAL CONTRACT ENFORCEMENT CORPORATION CORPORATIONS COST OF CAPITAL COUNSEL DEBT EMPLOYMENT ENTREPRENEURS ENTREPRENEURSHIP EQUILIBRIUM EQUITY INVESTMENTS EXPANSION FIRM SIZE FISHING FIXED COSTS HUMAN CAPITAL INCOME INTANGIBLE ASSETS LAWS LAWYERS LEGAL PROTECTION LEGISLATION MARGINAL PRODUCT NEW ENTRANTS OIL PRODUCERS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS RETURNS TO SCALE SIZE OF FIRMS SMALL FIRMS WAGE RATES EMPLOYMENT COMPANIES PRIVATE ENTERPRISES LEGAL SYSTEMS ENTREPRENEURS EMPLOYERS PROPRIETORSHIPS JUSTICE ENFORCEMENT INDIGENOUS PEOPLES EMPLOYMENT NARCOTICS TRAFFIC Laeven, Luc Woodruff, Christopher The Quality of the Legal System, Firm Ownership, and Firm Size |
| geographic_facet |
Latin America & Caribbean Mexico |
| relation |
Policy Research Working Paper;No.3246 |
| description |
Employment in developing countries is
disproportionately concentrated in very small firms. The
authors examine the extent to which the distribution of firm
size is related to the quality of the legal system using
data from Mexico. They combine Lucas' (1978) model of
firm size with Himmelberg, Hubbard, and Love's (2001)
consideration of idiosyncratic risk in a framework in which
the distribution of entrepreneurial talent and aversion to
idiosyncratic risk combine to determine the optimal size of
firms. Their data allows them to focus on the differential
impact of the legal system on proprietorships and
corporations. Moreover, by focusing on firms in a single
country, the data draw attention to the importance of
variation in the administration of justice and the
enforcement of legal verdicts. The authors find that Mexican
states with more effective legal systems have larger firms.
A one-standard deviation improvement in the quality of the
legal system increases the average firm size by about 10-15
percent. The impact of the legal system is greatest in
sectors in which proprietorships dominate. This pattern is
consistent with better legal systems increasing the
investment of firm owners by reducing the idiosyncratic risk
they face. All of these findings are upheld when the authors
instrument for institutional variables using the log of
indigenous population in 1900 and the active presence of the
drug trade in the state. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Laeven, Luc Woodruff, Christopher |
| author_facet |
Laeven, Luc Woodruff, Christopher |
| author_sort |
Laeven, Luc |
| title |
The Quality of the Legal System, Firm Ownership, and Firm Size |
| title_short |
The Quality of the Legal System, Firm Ownership, and Firm Size |
| title_full |
The Quality of the Legal System, Firm Ownership, and Firm Size |
| title_fullStr |
The Quality of the Legal System, Firm Ownership, and Firm Size |
| title_full_unstemmed |
The Quality of the Legal System, Firm Ownership, and Firm Size |
| title_sort |
quality of the legal system, firm ownership, and firm size |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/03/4065898/quality-legal-system-firm-ownership-firm-size http://hdl.handle.net/10986/14120 |
| _version_ |
1764430248246509568 |