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Journal Article

Property Rights and Finance

Simon Johnson, John McMillan and Christopher Woodruff
The American Economic Review
Vol. 92, No. 5 (Dec., 2002), pp. 1335-1356
Stable URL: http://www.jstor.org/stable/3083253
Page Count: 22
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Property Rights and Finance
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Abstract

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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