Law, Endowment and Inequality in Access to Finance

27 Pages Posted: 9 Jun 2019

See all articles by Seth Armitage

Seth Armitage

University of Edinburgh - Accounting and Finance

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Xianda Liu

University of Edinburgh, Business School

Wang Cong

affiliation not provided to SSRN

Date Written: May 21, 2019

Abstract

Theoretical work suggests an ambiguous relationship between the strength of institutions and the distribution of access to finance. Using a sample of listed firms from 70 countries, this study constructs country-level measures of inequality in access to external finance and explores its relation to institutions. We show that inequality of access is positively related to financial development as well as inequality in the distribution of firm size, firm revenue, and residents’ incomes. Countries with stronger investor protection for equity and debt have higher inequality in equity and debt financing respectively, presumably as a result of higher efficiency in fund allocation. Finally, we find that the historical determinants of institutions, including the civil law tradition and the disease environment encountered by colonizers, are negative related to inequality in access to external finance. The results support both law and endowment theories.

Keywords: capital concentration, endowment, external financing, financial development, investor protection, inequality, law

JEL Classification: G2; K2; O16; P51; N20

Suggested Citation

Armitage, Seth and Hou, Wenxuan and Liu, Xianda and Cong, Wang, Law, Endowment and Inequality in Access to Finance (May 21, 2019). Available at SSRN: https://ssrn.com/abstract=3391749 or http://dx.doi.org/10.2139/ssrn.3391749

Seth Armitage

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Xianda Liu

University of Edinburgh, Business School ( email )

Edinburgh
United Kingdom

Wang Cong

affiliation not provided to SSRN

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