Institutions, Investor Protection, and Corporate Choices in Developing Economies

54 Pages Posted: 17 Mar 2011

See all articles by Rima Turk-Ariss

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2011

Abstract

This paper examines the extent to which differences in legal tradition, judicial efficiency, and investor protection affect debt financing and risk taking across developing economies. We find that firms in common law countries have the highest preference for debt financing while corporations in countries of socialist legal tradition assume the greatest levels of risk. Further, judicial efficiency matters most across developing economies. When legal formalism is high, firms contract more debt, but they are less willing to undertake risky investments. The findings also support the “dark side” to strong creditor rights in bankruptcy, but this “dark side” is sector-dependent.

Keywords: Developing Economies, Corporate Financing, Risk Taking, Legal Origin, Investor Protection

JEL Classification: G15, G32, G34, O16

Suggested Citation

Turk-Ariss, Rima, Institutions, Investor Protection, and Corporate Choices in Developing Economies (March 14, 2011). Available at SSRN: https://ssrn.com/abstract=1785699 or http://dx.doi.org/10.2139/ssrn.1785699

Rima Turk-Ariss (Contact Author)

International Monetary Fund ( email )

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Economic Research Forum ( email )

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