Property Rights and Finance
NBER Working Paper No. 8852
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.