American Economic Review: Vol. 92 No. 5 (December 2002)
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Property Rights and Finance
Johnson, Simon, John McMillan, and Christopher Woodruff. 2002. "Property Rights and Finance ." American Economic Review, 92(5): 1335-1356.
Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.
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