Judicial quality and regional firm performance: The case of Indian states

Higher quality institutions help a firm to invest in institutional-dependent inputs, which might affect a firm's performance. I use data for Indian manufacturing that matches state-by-state firm-level data with state-by-state data on particularly important institution – Judicial quality. Results show that judicial quality is a significant determinant of higher firm performance – both for exports and domestic sales. My most conservative estimate suggests that a 10% increase in judicial quality of a region helps to increase the sales of a firm by 1–2%. I explicitly control for the ‘selection’ effect by using a two-step Average Treatment Effect (ATE) procedure. The results also support my initial findings. My results are robust to a battery of robustness checks.     

Distressed acquisitions: Evidence from European emerging markets

We analyze factors behind 23,213 distressed acquisitions in European emerging markets from 2007 to 2019. Besides the impact of financial ratios, legal form, ownership structure, firm size, and age, we emphasize the role of institutions and channels of their propagation. We show that the quality and enforcement of insolvency laws are linked with the lower probability of distressed acquisitions, followed by corruption control and progress in banking reforms. The impact of institutions is larger in less-advanced countries as compared to economically stronger ones. The effect of institutions increased after the financial crisis but declined as the economic situation improved.     

Democracy,Rule of Law,Corruption Incentives,and Growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the “technology of corruption” is the ease with which rent‐seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent‐seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions, respectively, are limited.     

Matching Bankruptcy Laws to Legal Environments

We study a model of optimal bankruptcy law in an environmentwhere legal quality can vary along two dimensions: the expertiseof judges and the quality of contract enforcement. We analyzea model in which a judicially influenced bankruptcy processcan enhance the efficiency of incomplete contracts by conditioningthe allocation of control rights in bankruptcy on firm quality.We consider the optimal balance of debtor and creditor interestsas a function of the legal environment and show that the optimaldegree of "creditor-friendliness" in the bankruptcy code increasesas judicial ability to recognize firm quality falls and as thequality of contract enforcement deteriorates. Our model showsthat a bankruptcy law that attempts to preserve going-concernvalue, such as US Chapter 11, requires judicial expertise tobe effective. Where such expertise is unavailable, a law thatfocuses more on creditor recovery is preferred. (JEL D86, G33,G34, K22)     

Is Tinkering with Institutional Quality a Panacea for Firm Performance? Insights from a Semiparametric Approach to Modeling Firm Performance

There is a large and growing literature on the impact of institutional quality on economic performance and the broad consensus is that “good” institutions facilitate better economic performance. The literature that provides micro‐level support for the policy discourse about institutional quality does not, however, account for significant intra‐country variation in reactions of firms to changes in business environments, even within the same industry, and it generally ignores the possibility that the impact of institutional quality on firm performance may not be neutral. In this paper, we analyze the impact of institutions on firm performance using an approach that enables us to overcome these problems with the stylized approach. Using cross‐country firm‐level data, we demonstrate that not only does the marginal impact of institutional quality vary significantly within countries, but also that the impact is economically significant only at the two extremes of the distribution. We view this as prima facie evidence that policies that tinker with institutional quality on the basis of the popular wisdom about the impact of these institutions on the average firm may not have the desired or expected impact, at least at the micro level.     

Does Taxation Stifle Corporate Investment? Firm‐Level Evidence from ASEAN Countries

This article conducts a firm‐level analysis of the effect of taxation on corporate investment, using large‐scale panel data on non‐financial firms over the period 1990–2014, and controlling for macrostructural differences among ASEAN countries. We find a significant degree of persistence in fixed investment over time, which varies with firm characteristics, such as size, growth prospects, profitability and leverage. The non‐linear estimations indicate that taxation facilitates business investment (possibly by enabling public investment in infrastructure and human capital, and the proper functioning of government institutions), but this effect turns negative and stifles private investment growth as the tax burden increases.     

Quality of judicial institutions,crimes, misdemeanors,and dishonesty

We investigate the extent to which quality of judicial institutions has an impact on individuals’ propensity for criminal and dishonest behavior and on their views regarding the acceptability of dishonesty and law-breaking. We use micro data on residents of 25 European countries and employ alternative measures of judicial quality as perceived by the residents of these countries. As an instrument for judicial quality we employ the procedures with which prosecutors and judges are appointed to their posts in each country. As alternative instruments, we employ an index of de jure institutional quality as well as its components, which provide similar results. The findings show that an increase in the perception of the quality of judicial institutions, such as an improvement in judicial independence or the impartiality of the courts, has a deterrent effect on dishonest and criminal acts. A higher perceived quality of the judicial system also makes individuals less likely to find acceptable a variety of dishonest and illicit behaviors, suggesting that institutions help shape the beliefs of the society. We obtain the same results when we analyze the sample of immigrants, whose cultural attributes should be (more) related to their countries of origin, rather than their countries of residence, and thus should be arguably uncorrelated with the factors that can impact the instrument. We show that people’s beliefs in the importance of the family, in the fairness of others, and the importance of being rich are not impacted by judicial quality, suggesting that judicial quality is not a blanket representation of underlying cultural norms and beliefs in the society.     

并购后组织结构设置与并购绩效——基于多重因素的调节效应

并购后对被并购企业的组织地位进行调整是并购后组织结构设置中的一项重要决策.在中国情境下,并购后保留被并购企业的法人资格会比取消其法人资格更有利于主并企业的并购绩效.同时,区域因素、并购前绩效以及相对规模对并购后的组织结构和并购绩效之间的关系具有显著的调节作用,即:当跨区域并购时,并购后保留被并购企业的法人地位对主并企业的并购绩效的积极作用会越大;被并购企业并购前绩效越高,则并购后取消其法人 地位对主并企业的并购绩效的积极作用会越大;被并购企业的相对规模越大,则并购后保留其法人地位对主并企业的并购绩效的积极作用会越大.     

State Accountancy Regulations,Audit Firm Size,and Auditor Quality: An Empirical Investigation

This paper extends the literature on occupational licensing by examining the effect of states' licensing requirements for Certified Public Accountants (CPAs). We related variations in licensing requirements across states to CPA firm based assessments of service quality. Based upon prior research, we also examined the relationship between service quality and a market generated quality indicator: CPA firm size. The results show no association between audit quality and variations in regulatory strictness. However, a positive relationship was found between audit quality and firm size, suggesting that market forces, rather than governmental intervention, is effective in addressing the information asymmetry that can exist between CPAs and their clients.     

Law and Finance in Transition Economies

This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.     

The more subsidies,the longer survival? Evidence from Chinese manufacturing firms

How do government subsidies affect firm survival? By using Chinese firm‐level data for 1998 to 2007, we show that, on average, there is a positive and significant impact of government subsidies on firm survival. We also investigate the heterogeneous effects of government subsidies with different intensities on firm survival, and find that moderate‐intensity government subsidies exert a positive impact on firm survival, while high‐intensity government subsidies increase the exit probabilities, the underlying mechanisms via subsidy‐seeking investment and innovation incentive weakening are supported by empirical evidence. Furthermore, we explore the role of governance institutions in the subsidy–survival relationship, and find that the positive impact of government subsidies on firm survival is more pronounced in regions with better governance institutions.     

Trade and the Environment: The Role of Firm Heterogeneity

In this paper, we derive a new effect of trade liberalization on the quality of the environment. We show that in the presence of heterogeneous firms, the aggregate volume of emissions is influenced by a reallocation effect resulting from an increase in the relative size of more productive firms. The relative importance of this reallocation effect and the scale effect well‐known from the literature is affected by the emission intensity at the firm level. Domestic emissions decrease as a result of a unilateral tariff reduction if and only if firm‐specific emission intensity decreases strongly with increasing firm productivity. As a result of the induced change in foreign emissions, domestic pollution can increase even if domestic emissions decrease.     

Location decisions of non‐bank financial foreign direct investment: Firm‐level evidence from Europe

The non‐bank financial sector in Europe has more than doubled in size between 2005 and 2015 reflecting the substantial growth in shadow banking activities. However, a large proportion of the non‐bank financial sector that remains unmapped as granular balance sheet information is not available for over half of the sector. Motivated by these data gaps and employing firm‐level data, this paper examines the location decisions of newly incorporated foreign affiliates in the non‐bank financial sector across 27 European countries over the period 2004 to 2012. The probability of a country being chosen as the location for a new foreign affiliate is found to be negatively associated with higher corporate tax rates and geographic distance but increases with the size and financial development of the host country. The financial regulatory regime in the host country and gravity related controls such as the home and host country sharing a common legal system, language, border, and currency are also found to impact the likelihood of non‐bank financial FDI.     

International Technology Transfer and Welfare

We investigate the welfare effect of international technology transfer in a quality model. A foreign innovator with a new quality product can license its innovation to the domestic firm(s) via a fixed fee. Findings show that the foreign innovator will license exclusively to the high‐quality firm under Bertrand competition, whereas it may exclusively license to the high‐quality firm, the low‐quality firm, or non‐exclusively to both firms under Cournot competition. Non‐exclusive licensing is necessarily welfare‐enhancing whereas exclusive licensing is welfare‐reducing if the quality of the new technology is not sufficiently superior to that of the domestic ones.     

SPINOFFS AND THE MARKET FOR IDEAS*

We present a theory of entry through spinoffs where workers generate ideas and possess private information concerning their quality. Because quality is privately observed, adverse selection implies that the market can only offer a price that reflects the average quality of ideas sold. Only workers with good ideas decide to spin off, whereas workers with mediocre ideas sell them. Existing firms pay a price for ideas sold in the market that implies zero expected profits. Hence, firms’ project selection is independent of firm size, which can lead to scale‐independent growth. This mechanism results in invariant firm‐size distributions that resemble the data.     

双边关系质量与合作治理模式:整合分布式创新核心机制的概念模型

分布式创新是近年来技术创新领域的一个前沿主题,已有学者发现企业间双边关系质量对分布式创新结果和绩效具有促进作用,但关于其对分布式创新过程及治理模式的影响仍缺乏机理性认识。从社会网络视角,基于分布式创新机制与合作治理理论,提出了企业间关系质量—分布式创新机制—合作治理模式的分析框架。通过深入分析分布式创新中双边关系质量对合作治理模式选择的影响,构建了一个由分布式创新内在机制和合作涉及的技术范围组成的带有中介和调节作用的路径整合模型。总体来说,解释了双边关系质量通过完善分布式创新机制使得企业更倾向于选择股权合作模式的内在机理,希望通过该模型为后续学者提供一个分析双边关系特征与合作创新之间关系的新思路。     

Analysis of loan guarantees among the Korean Chaebol affiliates

This paper analyses corporate loan guarantees among the Korean chaebol affiliates. Loan guarantees are found to be efficiency‐neutral under a set of ideal conditions characterized by perfect and symmetric information, no agency problem, and no governmental interference in private financial contracts. In reality though, corporate loan guarantees have negative as well as positive effects. The negative effects of loan guarantees arise from the agency problem between the controlling minority shareholders and outside investors. Government's implicit support to financial institutions worsens the problem. Without such distortions, a loan guarantee by the guarantor firm may signal the quality of the investment project of the borrowing firm, if the guarantor firm has more information than the lending bank with regards to the type of the borrowing firm's investment project.     

Consumer Boycotts: Does Trust in Law-Making and Law-Enforcing Institutions Matter?

This article estimates the effects of trust in political and judicial institutions on individuals’ propensity to take part in consumer boycotts. In particular, this study disentangles the effects of institutional trust and quality. The analysis relies on data from the 2010 European Social Survey, which is a path breaking comparative study of how justice is perceived and allows a valid measure of judicial and political trust to be constructed. A two-step instrumental variable method was used to measure the effects of institutional trust, controlling for micro- and macro- level factors. The results indicate that trust in law-making institutions is negatively associated with boycott participation, whereas the relationship between judicial trust in institutions and an individual’s likelihood to boycott is U-shaped. The findings are robust to the introduction of social capital and sociodemographic variables.     

法律制度的信誉基础

法律和信誉是维持市场有序运行的两个基本机制。事实上 ,与法律相比 ,信誉机制是一种成本更低的维持交易秩序的机制。特别是 ,在许多情况下 ,法律是无能为力的 ,只有信誉能起作用。进一步 ,法律的判决和执行依赖于当事人对信誉的重视程度。当人们没有积极性讲信誉的时候 ,法律就失去了信誉基础。在商业社会 ,企业是信誉的载体。中国企业不重视信誉的原因在于产权不明晰和政府对经济的任意干预。法律制度的运行也离不开执法者的信誉。为了使执法者重视自己的信誉 ,有必要在司法系统引入竞争机制。     

Banking Structure,Marketization, and Small Business Development: Regional Evidence From China

This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short‐term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial‐level marketization indexes, we find that extensive marketization, factor market development and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets and favourable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger.