Does (average) size matter? Court enforcement, business demography and firm growth
- 620 Downloads
Previous literature finds that the quality of judicial enforcement has a positive impact on average firm size, but it has not disentangled its effect on the growth of incumbent firms from that on business demography. This distinction is crucial, as entrants are generally smaller than incumbents, but both high entry rates and high firm growth are associated with better economic performance. This paper fills this gap, finding that judicial efficacy fosters the growth of incumbents and promotes entry in Spain. The paper also shows for the first time that the specific type of judicial procedure that companies face in case of a conflict, rather than the overall functioning of courts, is the relevant matter. Specifically, judicial efficacy at the declaratory stage (when a debt is verified by a judge) has a positive impact on both firm growth and entry, while it has no impact at the execution stage (when the judge requires its payment).
KeywordsEnforcement institutions Judicial efficacy Firm size Firm growth Business demography
JEL ClassificationsD23 K41 K12 L11 L25 L26 O12 R12
We are grateful to Patricia Festa, Ildefonso Villán Criado, Fernando Gómez, María Gutiérrez, Juan Francisco Jimeno, Enrique Moral, Carlos Thomas and especially the editor and two anonymous referees for their useful comments and suggestions. We especially appreciate the work of Claire McHugh, who reviewed the manuscript in depth. We also wish to thank seminar participants, referees and discussants at two seminars of the Banco de España-Eurosystem, the III Annual Conference of the Spanish Association of Law and Economics (AEDE), the 2012 Annual Conference of the European Association of Law and Economics (EALE) and the 8th Annual Conference of the Italian Society of Law and Economics (SIDE-ISLE). We are also indebted to Marcos Marchetti, Paula Sánchez Pastor and Ángel Luis Gómez Jiménez for their assistance in the preparation of some of the variables and figures. The views expressed are those of the authors and should not be attributed to the Banco de España.
- Bentolila, S., Dolado, J., & Jimeno, J. (2011). Reforming an insider-outsider labor market: The Spanish experience. IZA discussion paper series, no. 6168. doi: 10.1186/2193-9012-1-4.
- Brandt, N. (2004). Business dynamics in Europe. OECD Science, Technology and Industry. Working papers, 2004/1, OECD Publishing. doi: 10.1787/250652270238.
- Carmignani, A., & Giacomelli, S. (2010). Too many lawyers? Litigation in Italian civil courts. Temi di discussione (working papers), no. 745, Banca d’Italia. Google Scholar
- Chemin, M. (2009). The impact of the judiciary on entrepreneurship: Evaluation of Pakistan’s access to justice programme. Journal of Public Economics, 93(1–2), 114–125.Google Scholar
- Consejo General del Poder Judicial. (2012). La Justicia Dato a Dato Año 2011. Madrid: Consejo General del Poder Judicial.Google Scholar
- Dolado, J., Ortigueira, S., & Stucchi, R. (2013). Does dual employment protection affect TFP? Mimeo: Evidence from Spanish manufacturing firms.Google Scholar
- Drukker, D. M. (2003). Testing for serial correlation in linear panel-data models. The Stata Journal, 2(3), 1–10.Google Scholar
- Foster, L., Haltiwanger, J., & Krizan, C. J. (1998). Aggregate productivity growth: Lessons from microeconomic evidence. NBER WP 6803.Google Scholar
- García-Posada, M., & Mora-Sanguinetti, J. S. (2014). Entrepreneurship and enforcement institutions: Disaggregated evidence for Spain. Banco de España working paper 1405. doi: 10.2139/ssrn.2413422.
- Giacomelli, S., & Menon, C. (2013). Firm size and judicial efficiency in Italy: Evidence from the neighbour’s tribunal. Banca d’Italia working paper 898.Google Scholar
- Klapper, L., Laeven, L., & Rajan, R. (2004). Business environment and firm entry: Evidence from international data. World Bank Policy Research working paper 3232.Google Scholar
- Kumar, K., Rajan, R., & Zingales, L. (2001). What determines firm size? Chicago booth working paper. doi: 10.2139/ssrn.170349.
- López-García, P., & Puente, S. (2007). A comparison of the determinants of survival of spanish firms across economic sectors. In J. M. Arauzo-Carod & M. C. Manjon-Antolin (Eds.), Entrepreneurship, industrial location and economic growth (pp. 161–183). Cheltenham: Edwar Elgar.Google Scholar
- López-García, P., & Sánchez, P., (2010). El tejido empresarial español en perspectiva. Nota interna. Departamento de Coyuntura y Previsión Económica. Banco de España.Google Scholar
- Mora-Sanguinetti, J. S. (2010). A characterization of the judicial system in Spain: Analysis with formalism indices. Economic Analysis of Law Review, 1(2), 210–240.Google Scholar
- Mora-Sanguinetti, J. S., & Fuentes, A. (2012). An analysis of productivity performance in Spain before and during the crisis: Exploring the role of institutions. OECD economics department working papers, no. 973. OECD Publishing. doi: 10.1787/5k9777lqshs5-en.
- Núñez, S. (2004). Salida, entrada y tamaño de las empresas españolas. Boletín Económico. March. Banco de España.Google Scholar
- Padilla, J., V. Llorens, S. Pereiras and N. Watson (2007). Eficiencia judicial y eficiencia económica: el mercado crediticio español. In La Administración Pública que España necesita. Libro Marrón. Círculo de Empresarios, Madrid.Google Scholar
- Palumbo, G., Giupponi, G., Nunziata, L., & Mora-Sanguinetti, J. S. (2013). The economics of civil justice: New cross-country data and empirics. OECD Economics department working papers no. 1060. doi: 10.1787/5k41w04ds6kf-en.
- Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. University of Cambridge, Faculty of Economics, Cambridge working papers in economics no. 0435.Google Scholar
- Petersen, M., & Rajan, R. (1994). The benefits of lending relationships: Evidence from small business data. The Journal of Finance, 49(1), 3–37.Google Scholar
- Pilat, D. (2004). The ICT productivity paradox: Insights from micro data. OECD economic studies no. 38.Google Scholar
- Ribeiro, S. P., Menghinello, S., & De Backer, K. (2010). The OECD ORBIS database: Responding to the need for firm-level micro-data in the OECD. OECD working paper no. 30-2010/1. doi: 10.1787/5kmhds8mzj8w-en.
- Scarpetta, S., Hemmings, P., Tressel, T., & Woo, J. (2002). The role of policy and institutions for productivity and firm dynamics: Evidence from micro and industry data. Economic department working papers, no. 329, OCDE.Google Scholar
- Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: The MIT Press.Google Scholar