Publication:
The Quality of the Legal System, Firm Ownership, and Firm Size

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dc.contributor.authorLaeven, Luc
dc.contributor.authorWoodruff, Christopher
dc.date.accessioned2013-06-21T18:06:37Z
dc.date.available2013-06-21T18:06:37Z
dc.date.issued2004-03
dc.description.abstractEmployment 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.en
dc.identifierhttp://documents.worldbank.org/curated/en/2004/03/4065898/quality-legal-system-firm-ownership-firm-size
dc.identifier.doi10.1596/1813-9450-3246
dc.identifier.urihttps://hdl.handle.net/10986/14120
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, D.C.
dc.relation.ispartofseriesPolicy Research Working Paper;No.3246
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACCOUNTING
dc.subjectACCOUNTING SYSTEMS
dc.subjectAGRICULTURAL PRODUCTION
dc.subjectBANKING SYSTEMS
dc.subjectCAPITAL EMPLOYED
dc.subjectCAPITAL MARKETS
dc.subjectCOAL
dc.subjectCONTRACT ENFORCEMENT
dc.subjectCORPORATION
dc.subjectCORPORATIONS
dc.subjectCOST OF CAPITAL
dc.subjectCOUNSEL
dc.subjectDEBT
dc.subjectEMPLOYMENT
dc.subjectENTREPRENEURS
dc.subjectENTREPRENEURSHIP
dc.subjectEQUILIBRIUM
dc.subjectEQUITY INVESTMENTS
dc.subjectEXPANSION
dc.subjectFIRM SIZE
dc.subjectFISHING
dc.subjectFIXED COSTS
dc.subjectHUMAN CAPITAL
dc.subjectINCOME
dc.subjectINTANGIBLE ASSETS
dc.subjectLAWS
dc.subjectLAWYERS
dc.subjectLEGAL PROTECTION
dc.subjectLEGISLATION
dc.subjectMARGINAL PRODUCT
dc.subjectNEW ENTRANTS
dc.subjectOIL
dc.subjectPRODUCERS
dc.subjectPRODUCTIVITY
dc.subjectPROFITABILITY
dc.subjectPROPERTY RIGHTS
dc.subjectRETURNS TO SCALE
dc.subjectSIZE OF FIRMS
dc.subjectSMALL FIRMS
dc.subjectWAGE RATES EMPLOYMENT
dc.subjectCOMPANIES
dc.subjectPRIVATE ENTERPRISES
dc.subjectLEGAL SYSTEMS
dc.subjectENTREPRENEURS
dc.subjectEMPLOYERS
dc.subjectPROPRIETORSHIPS
dc.subjectJUSTICE
dc.subjectENFORCEMENT
dc.subjectINDIGENOUS PEOPLES EMPLOYMENT
dc.subjectNARCOTICS TRAFFIC
dc.titleThe Quality of the Legal System, Firm Ownership, and Firm Sizeen
dspace.entity.typePublication
okr.crosscuttingsolutionareaJobs
okr.crossref.titleThe Quality of the Legal System, Firm Ownership, and Firm Size
okr.date.doiregistration2025-04-10T09:25:06.176968Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2004/03/4065898/quality-legal-system-firm-ownership-firm-size
okr.globalpracticeTransport and ICT
okr.globalpracticeFinance and Markets
okr.globalpracticeTrade and Competitiveness
okr.guid737341468773089435
okr.identifier.doi10.1596/1813-9450-3246
okr.identifier.externaldocumentum000009486_20040608112020
okr.identifier.internaldocumentum4065898
okr.identifier.reportWPS3246
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/06/08/000009486_20040608112020/Rendered/PDF/wps3246legal.pdfen
okr.region.administrativeLatin America & Caribbean
okr.region.countryMexico
okr.topicFinance and Financial Sector Development::Microfinance
okr.topicPrivate Sector Development::Small and Medium Size Enterprises
okr.topicBanks and Banking Reform
okr.topicEnvironmental Economics and Policies
okr.topicSmall Scale Enterprise
okr.topicInfrastructure Economics and Finance::Private Participation in Infrastructure
okr.unitOff of Sr VP Dev Econ/Chief Econ (DECVP)
okr.volume1 of 1
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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