Law, Finance, and Firm Growth
Open accessAbstract
We investigate how differences in legal and financial systems affect firms' use of external financing to fund growth. We show that in countries whose legal systems score high on an efficiency index, a greater proportion of firms use long-term external financing. An active, though not necessarily large, stock market and a large banking sector are also associated with externally financed firm growth. The increased reliance on external financing occurs in part because established firms in countries with well-functioning institutions have lower profit rates. Government subsidies to industry do not increase the proportion of firms relying on external financing.
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Demirguc-Kunt and Maksimovic (1998) and Beck et al. (2001) report that banking development and stock market liquidity are positively linked to excess firm growth, meaning growth above what internal funds alone would allow.
“Demirguc-Kunt and Maksimovic (1998) and Beck, Demirguc-Kunt, Levine, and Maksimovic (2001) find that banking system development and stock market liquidity are positively associated with excess firm growth, which is the growth rate beyond what firms could achieve from internal funds.”
From Finance, Growth, and Inequality (2021) · cites this paper as Demirguc-Kunt and Maksimovic (1998)
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Finance, Growth, and Inequality
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- Authors
- Demirgüç-Kunt, A., & Maksimovic, V.
- Affiliations
- World Bank
- Robert H. Smith School of Business University of Maryland
- ORCID
- Maksimovic, Vojislav
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1998-12
- Volume
- 53
- Issue
- 6
- Pages
- 2107-2137
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2127756437
- Cited by
- 2,476
- References
- 1
- Citations by year
- 2026: 60 · 2025: 81 · 2024: 85 · 2023: 61 · 2022: 60 · 2021: 87 · 2020: 93 · 2019: 82 · 2018: 83 · 2017: 105 · 2016: 101 · 2015: 111 · 2014: 111 · 2013: 111 · 2012: 147
- FWCI
- 206.83
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- The Journal of Finance (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Firm Innovation and Growth
- Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
- Keywords
- external financing, business growth, legal system, financial system, institutional quality, long-term financing, stock market development, banking sector, government subsidies, rate of profit, cross-national comparison
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