Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Small business

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Employment in developing countries is disproportionately concentrated in very small firms. Laeven and Woodruff examine the extent to which the distribution of firm size is related to the quality of the legal system using data from Mexico. They combine Lucas' (1978) model of firm size with Himmelberg, Hubbard, and Love's (2001) consideration of idiosyncratic risk in a framework in which the distribution of entrepreneurial talent and aversion to idiosyncratic risk combine to determine the optimal size of firms. Their data allows them to focus on the differential impact of the legal system on proprietorships and corporations. Moreover, by focusing on firms in a single country, the data draw attention to the importance of variation in the administration of justice and the enforcement of legal verdicts. The authors find that Mexican states with more effective legal systems have larger firms. A one-standard deviation improvement in the quality of the legal system increases the average firm size by about 10-15 percent. The impact of the legal system is greatest in sectors in which proprietorships dominate. This pattern is consistent with better legal systems increasing the investment of firm owners by reducing the idiosyncratic risk they face. All of these findings are upheld when the authors instrument for institutional variables using the log of indigenous population in 1900 and the active presence of the drug trade in the state. This paper--a product of Financial Sector Operations and Policy Department--is part of a larger effort in the department to study the governance of firms.

Small business --- Small business --- Law and legislation.

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Self-employed --- Small business

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Small business --- Accounting

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This special issue is the 5th in a series that was first published in 2000. As the Guest Editor of the series, I look back with pleasure on a long and exciting journey of initiation, learning, discovery and fulfilment. Perhaps the most profound aspect of the journey relates to the process of change and our reaction and involvement with it.Previously published in: Education and Training, Volume 46, Number 6/9, 2004

Small business. --- Training.