IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v44y2015i3p639-669.html
   My bibliography  Save this article

Does (average) size matter? Court enforcement, business demography and firm growth

Author

Listed:
  • Miguel García-Posada
  • Juan Mora-Sanguinetti

Abstract

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). Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Miguel García-Posada & Juan Mora-Sanguinetti, 2015. "Does (average) size matter? Court enforcement, business demography and firm growth," Small Business Economics, Springer, vol. 44(3), pages 639-669, March.
    • Handle: RePEc:kap:sbusec:v:44:y:2015:i:3:p:639-669
    DOI: 10.1007/s11187-014-9615-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11187-014-9615-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11187-014-9615-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    2. Paloma Lopez-Garcia & Jose Manuel Montero, 2012. "Spillovers and absorptive capacity in the decision to innovate of Spanish firms: the role of human capital," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(7), pages 589-612, October.
    3. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    4. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    5. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    6. Samuel Bentolila & Juan Dolado & Juan Jimeno, 2012. "Reforming an insider-outsider labor market: the Spanish experience," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-29, December.
    7. Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2008. "Finance, Firm Size, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1379-1405, October.
    8. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    9. Silvia Giacomelli & Carlo Menon, 2012. "Firm Size and Judicial Efficiency in Italy: Evidence from the Neighbour's Tribunal," SERC Discussion Papers 0108, Centre for Economic Performance, LSE.
    10. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372, National Bureau of Economic Research, Inc.
    11. Nicola Brandt, 2004. "Business Dynamics in Europe," OECD Science, Technology and Industry Working Papers 2004/1, OECD Publishing.
    12. Ana Martín-Marcos & Jordi Jaumandreu, 2004. "Entry, exit and productivity growth: Spanish manufacturing during the eighties," Spanish Economic Review, Springer;Spanish Economic Association, vol. 6(3), pages 211-226, October.
    13. Sean M. Dougherty, 2014. "Legal Reform, Contract Enforcement and Firm Size in Mexico," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 825-844, September.
    14. Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-244, April.
    15. John Armour & Douglas Cumming, 2008. "Bankruptcy Law and Entrepreneurship," American Law and Economics Review, American Law and Economics Association, vol. 10(2), pages 303-350.
    16. Amanda Carmignani & Silvia Giacomelli, 2010. "Too many lawyers? Litigation in Italian civil courts," Temi di discussione (Economic working papers) 745, Bank of Italy, Economic Research and International Relations Area.
    17. Guilherme Lichand & Rodrigo R. Soares, 2014. "Access to Justice and Entrepreneurship: Evidence from Brazil's Special Civil Tribunals," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 459-499.
    18. Matthieu Chemin, 2012. "Does Court Speed Shape Economic Activity? Evidence from a Court Reform in India," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(3), pages 460-485, August.
    19. Luc Laeven & Christopher Woodruff, 2007. "The Quality of the Legal System, Firm Ownership, and Firm Size," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 601-614, November.
    20. Juan J. Dolado & Salvador Ortigueira & Rodolfo Stucchi, 2016. "Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(4), pages 421-459, November.
    21. Daniela Fabbri, 2010. "Law Enforcement and Firm Financing: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 776-816, June.
    22. Jopep M. Arauzo-Carod & Miguel C. Manjón-Antolín (ed.), 2007. "Entrepreneurship, Industrial Location and Economic Growth," Books, Edward Elgar Publishing, number 12798, March.
    23. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    24. Miguel García-Posada & Juan Mora-Sanguinetti, 2015. "Entrepreneurship and enforcement institutions: disaggregated evidence for Spain," European Journal of Law and Economics, Springer, vol. 40(1), pages 49-74, August.
    25. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
    26. Simon Johnson & John McMillan & Christopher Woodruff, 2007. "Courts and Relational Contracts," Palgrave Macmillan Books, in: Erik Berglöf & Gérard Roland (ed.), The Economics of Transition, chapter 8, pages 243-297, Palgrave Macmillan.
    27. Juan S. Mora, 2009. "A Characterization of the Judicial System in Spain: Analysis with Formalism Indices," Working Papers 2009-23, FEDEA.
    28. Rajan, Raghuram & Laeven, Luc & Klapper, Leora F., 2004. "Business Environment and Firm Entry: Evidence from International Data," CEPR Discussion Papers 4366, C.E.P.R. Discussion Papers.
    29. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    30. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
    31. Samuel Pinto Ribeiro & Stefano Menghinello & Koen De Backer, 2010. "The OECD ORBIS Database: Responding to the Need for Firm-Level Micro-Data in the OECD," OECD Statistics Working Papers 2010/1, OECD Publishing.
    32. Urata, Shujiro & Kawai, Hiroki, 2002. "Technological Progress by Small and Medium Enterprises in Japan," Small Business Economics, Springer, vol. 18(1-3), pages 53-67, Feb.- May.
    33. JosÈ C. FariÒas & Sonia Ruano, 2004. "The Dynamics of Productivity: A Decompostion Approach Using Distribution Functions," Small Business Economics, Springer, vol. 22(3_4), pages 237-251, April.
    34. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    35. Juan S. Mora Sanguinetti & Andrés Fuentes, 2012. "An Analysis of Productivity Performance in Spain Before and During the Crisis: Exploring the Role of Institutions," OECD Economics Department Working Papers 973, OECD Publishing.
    36. Chemin, Matthieu, 2009. "The impact of the judiciary on entrepreneurship: Evaluation of Pakistan's "Access to Justice Programme"," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 114-125, February.
    37. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    38. Juan Mora-Sanguinetti, 2012. "Is judicial inefficacy increasing the weight of the house property market in Spain? Evidence at the local level," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 3(3), pages 339-365, September.
    39. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
    40. Giuliana Palumbo & Giulia Giupponi & Luca Nunziata & Juan S. Mora Sanguinetti, 2013. "The Economics of Civil Justice: New Cross-country Data and Empirics," OECD Economics Department Working Papers 1060, OECD Publishing.
    41. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    42. Daniela Fabbri, 2010. "Law Enforcement and Firm Financing: Theory and Evidence," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 776-816, June.
    43. Elena Huergo & Jordi Jaumandreu, 2004. "How Does Probability of Innovation Change with Firm Age?," Small Business Economics, Springer, vol. 22(3_4), pages 193-207, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Miguel García-Posada & Juan Mora-Sanguinetti, 2015. "Entrepreneurship and enforcement institutions: disaggregated evidence for Spain," European Journal of Law and Economics, Springer, vol. 40(1), pages 49-74, August.
    2. Jimeno Juan F. & Martínez-Matute Marta & Mora-Sanguinetti Juan S., 2020. "Employment protection legislation, labor courts, and effective firing costs," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-26, January.
    3. Mora-Sanguinetti, Juan S. & Garoupa, Nuno, 2015. "Do lawyers induce litigation? Evidence from Spain, 2001–2010," International Review of Law and Economics, Elsevier, vol. 44(C), pages 29-41.
    4. Doménech-Pascual, Gabriel & Martínez-Matute, Marta & Mora-Sanguinetti, Juan S., 2021. "Do fee-shifting rules affect plaintiffs’ win rates? A theoretical and empirical analysis," International Review of Law and Economics, Elsevier, vol. 65(C).
    5. Juan S. Mora-Sanguinetti & Marta Martínez-Matute, 2019. "An economic analysis of court fees: evidence from the Spanish civil jurisdiction," European Journal of Law and Economics, Springer, vol. 47(3), pages 321-359, June.
    6. Silvia Giacomelli & Carlo Menon, 2017. "Does weak contract enforcement affect firm size? Evidence from the neighbour’s court," Journal of Economic Geography, Oxford University Press, vol. 17(6), pages 1251-1282.
    7. Daniel Dejuán & Juan S. Mora-Sanguinetti, 2019. "Quality of enforcement and investment decisions. Firm-level evidence from Spain," Working Papers 1927, Banco de España.
    8. Juan S. Mora-Sanguinetti & Marta Martínez-Matute & Miguel García-Posada, 2017. "Credit, crisis and contract enforcement: evidence from the Spanish loan market," European Journal of Law and Economics, Springer, vol. 44(2), pages 361-383, October.
    9. Jarosław Bełdowski & Łukasz Dąbroś & Wiktor Wojciechowski, 2020. "Judges and court performance: a case study of district commercial courts in Poland," European Journal of Law and Economics, Springer, vol. 50(1), pages 171-201, August.
    10. Juan S. Mora-Sanguinetti & Nuno Garoupa, 2015. "Litigation in Spain 2001-2010: Exploring the market for legar services," Working Papers 1505, Banco de España.
    11. Lopez-Martin, Bernabe & Perez-Reyna, David, 2021. "Contracts, firm dynamics, and aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    12. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    13. Alessandro Melcarne & Giovanni B. Ramello, 2020. "Bankruptcy delay and firms’ dynamics," Small Business Economics, Springer, vol. 54(2), pages 405-419, February.
    14. Juan S. Mora-Sanguinetti, 2021. "The impact of the efficacy of justice on business investment in Spain," Economic Bulletin, Banco de España, issue 3/2021.
    15. Zakia Jabeen & Jabir Ali & Nadia Yusuf, 2021. "Difference in business obstacles faced by firms across sizes: evidence from enterprise survey data of India," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 11(1), pages 71-81, December.
    16. Dejuan-Bitria, Daniel & Mora-Sanguinetti, Juan S., 2021. "Which legal procedure affects business investment most, and which companies are most sensitive? Evidence from microdata," Economic Modelling, Elsevier, vol. 94(C), pages 201-220.
    17. Juan F. Jimeno & Marta Martínez-Matute & Juan S. Mora-Sanguinetti, 2015. "Employment protection legislation and labor court activity in Spain," Working Papers 1507, Banco de España.
    18. Juan S. Mora-Sanguinetti & Ricardo Pérez-Valls, 2021. "How does regulatory complexity affect business demography? Evidence from Spain," European Journal of Law and Economics, Springer, vol. 51(2), pages 203-242, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miguel García-Posada & Juan Mora-Sanguinetti, 2015. "Entrepreneurship and enforcement institutions: disaggregated evidence for Spain," European Journal of Law and Economics, Springer, vol. 40(1), pages 49-74, August.
    2. Juan S. Mora-Sanguinetti & Ricardo Pérez-Valls, 2021. "How does regulatory complexity affect business demography? Evidence from Spain," European Journal of Law and Economics, Springer, vol. 51(2), pages 203-242, April.
    3. Juan S. Mora-Sanguinetti & Marta Martínez-Matute & Miguel García-Posada, 2017. "Credit, crisis and contract enforcement: evidence from the Spanish loan market," European Journal of Law and Economics, Springer, vol. 44(2), pages 361-383, October.
    4. Juan S. Mora-Sanguinetti & Ricardo Pérez-Valls, 2020. "¿Cómo afecta la complejidad de la regulación a la demografía empresarial? Evidencia para España," Working Papers 2002, Banco de España.
    5. Emanuela Carbonara & Enrico Santarelli & Hien Thu Tran, 2016. "De jure determinants of new firm formation: how the pillars of constitutions influence entrepreneurship," Small Business Economics, Springer, vol. 47(1), pages 139-162, June.
    6. Vincenzo Pezone, 2023. "The Real Effects of Judicial Enforcement," Review of Finance, European Finance Association, vol. 27(3), pages 889-933.
    7. Comi, Simona & Grasseni, Mara & Resmini, Laura, 2021. "Can judicial efficiency improve territorial attractiveness to FDI? The Italian experience," European Journal of Political Economy, Elsevier, vol. 70(C).
    8. Daniel Dejuán & Juan S. Mora-Sanguinetti, 2019. "Quality of enforcement and investment decisions. Firm-level evidence from Spain," Working Papers 1927, Banco de España.
    9. Pezone, Vincenzo, 2023. "The real effects of judicial enforcement," Other publications TiSEM 08176032-a171-4f23-8dac-e, Tilburg University, School of Economics and Management.
    10. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    11. Ewelina Mruk & Inmaculada Aguiar-Díaz & Maria Victoria Ruiz-Mallorquí, 2019. "Use of formal insolvency procedure and judicial efficiency in Spain," European Journal of Law and Economics, Springer, vol. 47(3), pages 435-470, June.
    12. Roberto Ippoliti & Alessandro Melcarne & Giovanni Ramello, 2015. "Judicial efficiency and entrepreneurs’ expectations on the reliability of European legal systems," European Journal of Law and Economics, Springer, vol. 40(1), pages 75-94, August.
    13. Juan S. Mora-Sanguinetti & Marta Martínez-Matute, 2019. "An economic analysis of court fees: evidence from the Spanish civil jurisdiction," European Journal of Law and Economics, Springer, vol. 47(3), pages 321-359, June.
    14. He, Weimin & Wang, Bin, 2024. "Environmental jurisdiction and energy efficiency: Evidence from China's establishment of environmental courts," Energy Economics, Elsevier, vol. 131(C).
    15. Ferrando, Annalisa & Moro, Andrea & Maresch, Daniela, 2015. "Creditor protection, judicial enforcement and credit access," Working Paper Series 1829, European Central Bank.
    16. Miguel García-Posada & Juan Mora-Sanguinetti, 2014. "Are there alternatives to bankruptcy? A study of small business distress in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 287-332, August.
    17. Rizos, Anastasios & Kapopoulos, Panayotis, 2021. "Judicial Efficiency and Economic Growth: Evidence based on EU data," MPRA Paper 107861, University Library of Munich, Germany.
    18. Matteo Bugamelli & Francesca Lotti & Monica Amici & Emanuela Ciapanna & Fabrizio Colonna & Francesco D�Amuri & Silvia Giacomelli & Andrea Linarello & Francesco Manaresi & Giuliana Palumbo & Filippo , 2018. "Productivity growth in Italy: a tale of a slow-motion change," Questioni di Economia e Finanza (Occasional Papers) 422, Bank of Italy, Economic Research and International Relations Area.
    19. Decarolis, Francesco & Mattera, Gianpiero & Menon, Carlo, 2020. "Delays at the Border: Court Efficiency and Delays in Public Contracts," CEPR Discussion Papers 14856, C.E.P.R. Discussion Papers.
    20. Sean M. Dougherty, 2014. "Legal Reform, Contract Enforcement and Firm Size in Mexico," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 825-844, September.

    More about this item

    Keywords

    Enforcement institutions; Judicial efficacy; Firm size; Firm growth; Business demography; D23; K41; K12; L11; L25; L26; O12; R12;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:44:y:2015:i:3:p:639-669. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.