Journal of Finance Vol. 67 No. 1 2012
Why Does the Law Matter? Investor Protection and Its Effects on Investment, Finance, and Growth
Abstract
Investor protection is associated with greater investment sensitivity to q and lower investment sensitivity to cash flow. Finance plays a role in causing these effects; in countries with strong investor protection, external finance increases more strongly with q , and declines more strongly with cash flow. We further find that q and cash flow sensitivities are associated with ex post investment efficiency; investment predicts growth and profits more strongly in countries with greater q sensitivities and lower cash flow sensitivities. The paper's findings are broadly consistent with investor protection promoting accurate share prices, reducing financial constraints, and encouraging efficient investment.
- DOI
- 10.1111/j.1540-6261.2011.01713.x
- Volume
- 67
- Issue
- 1
- Pages
- 313-350
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref