Document Type
Article
Publication Date
11-2019
Abstract
This study builds on the existing law and finance literature by analyzing the impact of legal systems on both the level and the sourcing of working capital. We find that stronger rule of law results in lower levels of working capital, less sourcing from retained earnings, and more sourcing from banks. Firms in common-law regimes have lower levels of working capital and finance it from banks, while firms from civil-law environments rely on retained earnings and other financial institutions for sourcing. The impact of legal origin on both the level and the sourcing of working capital is mixed.
Published In
Published in the International Review of Economics & Finance in November 2019, Volume 64, pages 641-656.
Publication Title
International Review of Economics & Finance
DOI
https://doi.org/10.1016/j.iref.2018.01.010