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Discussion by Reena Aggarwal Conference on Small and Medium Enterprises October 14-15, 2004

Financial and Legal Institutions and Firm Size Thorsten Beck, Asli Demirgüç-Kunt and Vojislav Maksimovic. Discussion by Reena Aggarwal Conference on Small and Medium Enterprises October 14-15, 2004 World Bank, MC 4-800. ISSUE Relationship Between Firm Size and

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Discussion by Reena Aggarwal Conference on Small and Medium Enterprises October 14-15, 2004

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  1. Financial and Legal Institutions and Firm SizeThorsten Beck, Asli Demirgüç-Kunt and Vojislav Maksimovic Discussion by Reena Aggarwal Conference on Small and Medium Enterprises October 14-15, 2004 World Bank, MC 4-800

  2. ISSUE • Relationship Between Firm Size and • Legal System/Financial Institutions • Positive Relationship: Larger firms are • more complex, difficult to monitor/control, • Need to control for expropriation by • insiders • 2) Negative Relationship: Larger firms can serve as internal markets and more effective in resource mobilization

  3. RESULTS • Positive relationship between firm size and legal system/financial institutions • Legal system/financial institutions foster larger firms by allowing better access to finance and more effective capital allocation

  4. COMMENTS • 1) Firm-Level Analysis • Why have you left out firm-level variables? • Is it “largeness” alone or is it factors like concentration and float? • Why not interaction of country and firm • rather than just country and industry?

  5. COMMENTS • 2) Global Access to Capital • Large firms – “able to choose their boundaries and determine their size without constraint” • What about global access to capital? • Pakistan (68 firms) versus Mexico (52 firms) but Pakistan has 5 ADRs and Mexico has more than 40.

  6. COMMENTS • 2) Global Access to Capital • Other forms of monitoring • Siegel, 2004

  7. CONCLUSION • INTERESTING ISSUE • NICELY EXECUTED PAPER • CLEAR RESULTS • ROBUSTNESS CHECKS

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