Law, endowment and inequality in access to finance

Seth Armitage, Wenxuan Hou, Xianda Liu, Cong Wang

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Theoretical work suggests an ambiguous relationship between the strength of institutions and the distribution of access to finance. Using a sample of listed firms from 70 countries, this study constructs country-level measures of inequality in access to external finance, and explores its relation to institutions. We show that inequality of access is positively related to financial development as well as inequality in the distribution of firm size, firm revenue, and residents’ incomes. Countries with stronger investor protection for equity and debt have higher inequality in equity and debt financing respectively, presumably as a result of higher efficiency in fund allocation. Finally, we find that the historical determinants of institutions, including the civil law tradition and the disease environment encountered by colonizers, are negative related to inequality in access to external finance. The results support both law and endowment theories.
Original languageEnglish
JournalFinance Research Letters
Early online date22 May 2020
Publication statusE-pub ahead of print - 22 May 2020

Keywords / Materials (for Non-textual outputs)

  • capital concentration
  • endowment
  • external financing
  • financial development
  • investor protection
  • inequality
  • law


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