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.
Johnson, Simon, John McMillan, and Christopher Woodruff.
2002."Property Rights and Finance ."American Economic Review,
92(5): 1335-1356.DOI: 10.1257/000282802762024539