This study uses a new data set to assess whether capital structure theory is portable across countries with different institutional structures. We analyze capital structure choices of firms in 10 developing countries, and provide evidence that these decisions are affected by the same variables as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. Our findings suggest that although some of the insights from modern finance theory are portable across countries, much remains to be done to understand the impact of different institutional features on capital structure choices.

Using a unique firm-level survey data base covering 54 promoting firm growth, particularly the development of countries, Beck, Demirgiu,-Kunt, and Maksimovic the small and medium enterprise sector. But the evidence investigate whether different financial, legal, and also shows that the intuitive descriptors of an "efficient" corruption issues that firms report as constraints actually legal system are not correlated with the components of affect their growth rates. The results show that the extent the general legal constraints that predict firm growth. to which these factors constrain a firm's growth depends This finding suggests that the mechanism by which the very much on its size and that it is consistently the legal systems affects firm performance is not well smallest firms that are most adversely affected by all understood. The authors' findings also provide evidence three constraints. Firm growth is more affected by that the corruption of bank officials constrains firm reported constraints in countries with underdeveloped growth. This "institutional failure" should be taken into financial and legal systems and higher corruption. So, account when modeling the monitoring role of financial policy measures to improve financial and legal institutions in overcoming market failures due to development and reduce corruption are well justified in informational asymmetries.This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to understand the link from the financial sector to economic development. Copies of the paper are available free from the World Bank,

Using a unique firm-level survey database covering 54 countries, we investigate the effect of financial, legal, and corruption problems on firms' growth rates. Whether these factors constrain growth depends on firm size. It is consistently the smallest firms that are most constrained. Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is again the small firms that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. We also provide evidence that the corruption of bank officials constrains firm growth.CORPORATE FINANCE THEORY SUGGESTS that market imperfections, such as those caused by underdeveloped financial and legal systems, constrain firms' ability to fund investment projects. Using firm-level data, Demirgüç-Kunt and Maksimovic (1998) show that firms in countries with developed financial institutions and efficient legal systems obtain more external financing than firms in countries with less-developed institutions. Although these findings show a strong effect of financial institutions and the legal system on firm growth, their conclusions are based on a sample of the largest firms in each of the economies they study. Their study relies on inferring firms' demand for external financing from a financial model of the firm.In this paper, we use a size-stratified survey of over 4,000 firms in 54 countries to assess (1) whether financial, legal, and corruption obstacles affect firms' growth; (2) whether this effect varies across firms of different sizes; (3) whether small, medium-sized, and large firms are constrained differently in countries with different levels of financial and institutional development; (4) the specific characteristics of the legal system that facilitate firm growth; and (5) the importance of corruption in financial intermediaries to firm growth. * Beck and Demirgüç-Kunt are at the World Bank. Maksimovic is at the Robert H. Smith School of Business at the University of Maryland. This paper's findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, its executive directors, or the countries they represent. We would like to thank Jerry Caprio, George Clarke, Simeon Djankov, Jack Glen, Richard Green, the editor, Luc Laeven, Florencio Lopez-deSilanez, Inessa Love, Maria Soledad Martinez Peria, Raghuram Rajan, and seminar participants at the World Bank, American University, Case Western Reserve, Georgetown University, Oxford University, the University of Minnesota and Yale University, and an anonymous referee for helpful comments. 138 The Journal of FinanceThere is considerable evidence that firm size is related to a firm's productivity, survival, and profitability. As a result, understanding how financial, legal, and corruption obstacles affect firms of different sizes has policy implications. Significant resources are channeled into the promotion of smal...

Using a firm-level survey database covering 48 countries, we investigate how financial and institutional development affects financing of large and small firms. Our database is not limited to large firms, but includes small and medium firms and data on a broad spectrum of financing sources, including leasing, supplier, development and informal finance. Small firms and firms in countries with poor institutions use less external finance, especially bank finance. Protection of property rights increases external financing of small firms significantly more than of large firms, mainly due to its effect on bank finance. Small firms do not use disproportionately more leasing or trade finance compared to larger firms, so these financing sources do not compensate for lower access to bank financing of small firms. We also find that larger firms more easily expand external financing when they are constrained than small firms. Finally, we find suggestive evidence that the pecking order holds across countries.