Business environment and the incorporation decision |
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| Institution: | 1. Nottingham University Business School, University of Nottingham, Room B76, North Building, Jubilee Campus, Nottingham NG8 1BB, United Kingdom;2. Alliance Manchester Business School, University of Manchester, Room G2 Sackville Street Building, Sackville Street, Manchester M13 9PL, United Kingdom;3. Rennes School of Business 2, Rue Robert d''Arbrissel, CS 76522, 35065 Rennes Cedex, France;1. Department of Economics and Finance, College of Commerce and Economics, Sultan Qaboos University, P. O. Box 20, Al Khod 123, Oman;2. Commerce Division, Lincoln University, P. O. Box 80, Canterbury, New Zealand |
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| Abstract: | Using firm-level data from 52 countries we investigate how a country’s institutions and business environment affect firm’s organizational choices and what impact the organizational form has on access to finance and growth. We 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 favourable business environments. We do find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions. |
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