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

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).

Which legal procedure affects business investment most, and which companies are most sensitive? Evidence from microdata

“…First, the statistics clearly reflect the important presence of SMEs in the Spanish economy, as approximately 98% of firms in our sample are small and medium enterprises. Second, as it is well documented in other studies, the size composition of firms is heterogenous across provinces ( García-Posada and Mora-Sanguinetti, 2015 ). For example, larger and more mature firms are more concentrated in the province of Madrid and Barcelona, which are also the provinces with higher level of economic activity in Spain.…”

“…In this paper we approximate the efficacy of the functioning of the judicial system computing “congestion rates” (see García-Posada and Mora-Sanguinetti, 2015 , among others). These rates are calculated using information on the volume of conflicts accumulated without resolution and the number of resolved conflicts that reach a specific judicial body in a specific jurisdiction.…”

Credit, crisis and contract enforcement: evidence from the Spanish loan market

“…Figure 4 shows, for some regions, the variation through time of the clearance rate both for declarations and executions. 18 The variability of clearance rates increased during the crisis.…”

“…Furthermore, measuring the predictability or the accessibility of the system (Palumbo et al 2013) are also methods of comparing judicial systems, but ultimately they depend on the duration of proceedings. 18 Madrid is the capital of the country and the most populated region. Alicante is a coastal region, showing lower judicial efficacy.…”

Factores explicativos de la eficiencia en relación con el tamaño empresarial en el sector manufacturero español

“…El tejido empresarial español está caracterizado por empresas pequeñas, en términos internacionales, que operan en mercados con bajas tasas de compañías entrantes y salientes (García-Posada & Mora-Sanguinetti, 2015). En este sentido, Núñez (2004) y López-García y Sánchez (2010) encuentran que el tamaño medio de las empresas españolas es inferior al de algunas ciudades europeas y de ee.…”