TY - JOUR
T1 - Institutions and financial frictions
T2 - Estimating with structural restrictions on firm value and investment
AU - Claessens, Stijn
AU - Ueda, Kenichi
AU - Yafeh, Yishay
PY - 2014/9
Y1 - 2014/9
N2 - Using an enhanced version of the standard investment model, we estimate how institutions affect financial frictions at the firm (micro) level and, through the required rate of return, at the country (macro) level. Based on some 78,000 firm-year observations from 40 countries over the period 1990-2007, we show that good shareholder rights lower financial frictions, especially for firms with large external finance relative to their capital stock (e.g., small, growing or distressed firms). However, creditor rights generally do not affect financial frictions. It thus appears that in explaining cross-country differences in firm investment, frictions related to shareholder rights (e.g., shirking or "tunneling") are more relevant than debt-related frictions (e.g., limited liability or collateral constraints).
AB - Using an enhanced version of the standard investment model, we estimate how institutions affect financial frictions at the firm (micro) level and, through the required rate of return, at the country (macro) level. Based on some 78,000 firm-year observations from 40 countries over the period 1990-2007, we show that good shareholder rights lower financial frictions, especially for firms with large external finance relative to their capital stock (e.g., small, growing or distressed firms). However, creditor rights generally do not affect financial frictions. It thus appears that in explaining cross-country differences in firm investment, frictions related to shareholder rights (e.g., shirking or "tunneling") are more relevant than debt-related frictions (e.g., limited liability or collateral constraints).
KW - Financial friction
KW - Institutions
KW - Investment
KW - Investor protection
KW - Tobin's Q
UR - http://www.scopus.com/inward/record.url?scp=84903948841&partnerID=8YFLogxK
U2 - 10.1016/j.jdeveco.2014.05.004
DO - 10.1016/j.jdeveco.2014.05.004
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AN - SCOPUS:84903948841
SN - 0304-3878
VL - 110
SP - 107
EP - 122
JO - Journal of Development Economics
JF - Journal of Development Economics
ER -