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RFS Advance Access originally published online on July 31, 2006
Review of Financial Studies 2008 21(4):1833-1871; doi:10.1093/rfs/hhl032
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

How Well Do Institutional Theories Explain Firms’ Perceptions of Property Rights?

Meghana Ayyagari
George Washington University

Asli Demirgüç-Kunt
World Bank

Vojislav Maksimovic
University of Maryland, Robert H. Smith School of Business, University of Maryland

Address correspondence to Vojislav Maksimovic, Robert H. Smith School of Business at the University of Maryland, or e-mail: vmaksimovic{at}rhsmith.umd.edu.


  Abstract

We examine how well several institutional- and firm-level factors explain firms’ perceptions of property rights protection. The institutional theories we investigate account for approximately 50% of the country-level variation, indicating that current research addresses first-order factors. Firm-level characteristics, such as legal organization and ownership structure, are comparable with institutional factors in explaining variations in property rights protection. A country’s legal origin predicts property rights variation better than its religion, ethnic fractionalization, or natural endowments. However, these results are driven by the inclusion of former Socialist economies in the sample. When we exclude the former Socialist economies, legal origin explains considerably less than ethnic fractionalization does. (JEL D23, K4, C5)


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