Property Rights Institutions and Firm Performance: A Cross-Country Analysis

SummaryThis paper empirically examines the link between firms’ performance and institutional quality using data for firms in 52 countries. We control for potential endogeneity by instruments alternatively based on legal origin and “related-firm” institutions, and by a “bribery” variable. We also use two indicators of institutional quality: firms’ expectations that their contractual and property rights will be protected by the legal system, and a property rights index from The Heritage Foundation. We incorporate firm-specific characteristics including industry type and international linkages. We find significantly positive relationships between firms’ performance and perceived property rights protection independent of other observable firm characteristics.