NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Property Rights and Finance

Simon Johnson, John McMillan, Christopher Woodruff

NBER Working Paper No. 8852*
Issued in March 2002
NBER Program(s):   CF

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.

*Published: Johnson, Simon, John McMillan and Christoher Woodruff. "Property Rights And Finance," American Economic Review, 2002, v92(5,Dec), 1335-1356.

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