FINANCIAL AND LEGAL CONSTRAINTS TO FIRM GROWTH: THA CASE OF ITALY

SARNO, DOMENICO (2008): FINANCIAL AND LEGAL CONSTRAINTS TO FIRM GROWTH: THA CASE OF ITALY.

Abstract

The aim of this study is to confirm empirically the implications of the theory about the law-finance-growth nexus. In order to verify the predictions of the theory, a panel data including three different types of data is used. All the data are referred to Italian provinces. The empirical analysis shows that between firms’ growth and financial development there is a first-order relationship, while between firms’ growth and legal enforcement as measured by the efficiency of the judicial system there is a second-order relationship.

• Item Type: MPRA Paper
• Language: English
• Keywords: enforcement, judicial efficiency, financial development, firm’s growth
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior

References

Aghion P., Bolton P. (1992) – An Incomplete Contracts Approach to Financial Contracting, Review of Economic Studies, vol. 59, pp. 473-494;

Beck T., Demirgüç-Kunt A. Levine R. (2003) – Law, Endowments and Finance, Journal of Financial Economics, vol. 70, pp. 137-181;

Beck T., Demirgüç-Kunt A. Levine R., Maksimovic V. (2000) – Financial Structure and Economic Development: Firm, Industry and Country Evidence, World Bank, Policy Research Working Paper, n. 2423;

Beck T., Demirgüç-Kunt A. Levine R., Maksimovic V. (2005) – Financial and Legal Constraints to Growth: Does Firm Size Matter?, Journal of Finance, vol. 60, pp. 137-177;

Besanko D., Thakor A.V. (1987) – Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Markets, International Economic Review, vol. 28, pp. 671-689;

Bernanke B, Gertler M. (1990) – Financial Fragility and Economic Performance, Quarterly Journal of Economics, vol. 103, pp. 87-114;

Bond S., Meghir C. (1994) – Dynamic Investment Models and the Firm’s Financial Policy,Review of Economic Studies, vol. 61, pp. 197-222;

Demirgüç-Kunt A., Maksimovic V. (1998) – Law, Finance and Economic Growth, Journal of Finance, vol. 53, pp. 2107-2137;

Demirgüç-Kunt A., Maksimovic V. (1999) – Institutions, Financial Markets and Firm Debt Maturity, Journal of Financial Economics, vol. 54, pp. 295-336;

Diamond D. (984) – Financial Intermediation and Delegated Monitoring, Review of Economic Studies, vol. 51, pp. 393-414;

Fazzari M.S., Hubbard G.R., Petersen B.C. (1988) – Financing Constraints and CapitalInvestment, Brooking Papers of Economic Activity, vol. 1, pp. 141-195;

Generali A., Gobbi G. (1996) – “Il recupero dei crediti: costi, tempi e comportamenti delle banche”, Bank of Italy: Temi di discussione n. 265;

Hart O. (1995) – Firms, Contracts and Financial Structure, Oxford University Press, Oxford;

Hubbard G. R. (1998) – Capital-Market Imperfections and Investment, Journal of Economic Literature, vol. 36, pp.193-225;

Istat-Consorzio Mepa (2006) – Ritardi della giustizia e ricadute sul sistema economico, Roma;

Jappelli T., Pagano M., Bianco M. (2005) – Courts and Banks: Effects of Judicial Enforcementon Credit Markets, Journal of Money, Credit and Banking, vol. 37, pp. 223-244;

Kaplan S.N., Zingales L. (1997) – Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints, Quarterly Journal of Economics, vol. 112, pp. 169-215;

Kaplan S.N., Zingales L. (2000) – Investment-Cash Flow Sensitivities are not Measures of Financial Constraints, Quarterly Journal of Economics, vol. 115, pp. 707-712;

King R.G., Levine R. (1993) – Finance and Growth. Schumpeter Might Be Right, Quarterly Journal of Economics, vol. 108, pp. 713-737;

La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R.W. (1997) – Legal Determinants of External Finance, Journal of Finance, vol. 52, pp. 1131-1150;

La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R.W. (1998) – Law and Finance, Journal of Political Economy, vol. 106, pp. 1113-1155;

La Porta R., Lopez-de-Silanes F., Shleifer A., Vishny R.W. (2000) – Investor Protection and Corporate Governance, Journal of Financial Economics, vol. 58, pp. 3-27;

Levine R. (1997) – Financial Development ad Economic Growth: Views and Agenda, Journal of Economic Literature, vol. 35, pp. 688-726;

Levine R. (1998) – The Legal Environment, Banks and The Long-run Economic Growth, Journal of Money, Credit and Banking, vol. 30, pp.596-620;

Levine R. (1999) – Law, Finance and Economic Growth; Journal of Financial Intermediation,vol. 8, pp. 8-35;

Marchesi D. (1998) – L’inefficienza della giustizia civile: conseguenze sull’economia, in Cassese S., Galli G. (a cura di) – L’Italia da semplificare. Le istituzioni, Bologna, Il Mulino;

Marchesi D. (2001) – Giustizia: tempi e interazioni con il sistema economico, in ISAE, Rapporto Trimestrale, n.5, pp.1-36;

Marchesi D. (2003) – Litiganti, avvocati e magistrati. Diritto ed economia del processo civile, Bologna, Il Mulino;

Miller M. (1977) – Debt and Taxes, Journal of Finance, vol. 32, pp.261-275;

Modigliani F., M. Miller (1958) – The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, vol. 48, pp. 261-297;

Modigliani F., M. Miller (1961) – Dividend Policy, Growth and the Valuation of Shares, Journal of Business, vol. 34, pp. 411-433;

Myers S.C. (1984) – The Capital Structure Puzzle, Journal of Finance, vol. 39, pp.575-592;

Myers S.C., Najluf N.S. (1984) – Corporate Financing and Investment Decisions when Firms have Informations that Investors do not have, Journal of Financial Economics, vol. 13, pp.187-221;

Petersen M., Rajan R.G. (1994) – The Benefits of Lending Relationships: Evidence from Small Business Data, Journal of Finance, vol. 49, pp. 3-37;

Sharpe S. A. (1990) - Asymmetric Information, Bank Lending and Implicit Contracts: A Stilized Model of Customer Relationship, Journal of Finance, vol. 45, pp. 1069-1087;

Stiglitz J., Weiss A. (1981) – Credit Rationing in Markets with Imperfect Information, American Economic Review, vol. 71, pp. 67-127;

Williamson O. (1985) – The Economic Institutions of Capitalism, New York, The Free Press;

Williamson O. (1988) – Corporate Finance and Corporate Governance, Journal of Finance, vol.43, pp. 567-591;