Law and Firms' Access to Finance

Abstract

This article examines how a country's legal origin influences the operation of its financial system by using firm-level survey data across a broad cross-section of countries on the obstacles that firms face in raising external finance. Using panel regressions, the article assesses two channels through which legal origin may influence the financial system. We find that the adaptability of a country's legal system is more important for explaining the obstacles that firms face in accessing external finance than the political independence of the judiciary. Copyright 2005, Oxford University Press.