Business Environment and the Incorporation Decision
World Bank - Financial and Private Sector Development; World Bank
University of Maryland - Robert H. Smith School of Business
World Bank - Development Economics Data Group (DECDG)
May 20, 2004
World Bank Policy Research Working Paper No. 3317
Using firm-level data from 52 countries, Demirguc-Kunt, Love, and Maksimovic investigate how a country's institutions and business environment affect firms' organizational choices and the effects of organizational form on access to finance and growth. They find that businesses are more likely to choose the corporate form in countries with developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes, and efficient bankruptcy processes. Corporations report fewer financing, legal, and regulatory obstacles than unincorporated firms, and this advantage is greater in countries with more developed institutions and favorable business environments. The authors find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions.
This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to understand firm entry.
Number of Pages in PDF File: 36
Date posted: January 31, 2005
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