Firm growth and political institutions

ÂUsing a large sample of firms from 46 countries, we investigate the impact of political institutions on firm growth. We find that tighter political constraints stimulate firm growth and that this positive impact is more pronounced in weak legal environments. Our results are economically significant and robust to a number of sensitivity tests, including alternative proxies for political institutions, alternative measures of firm growth, additional controls, firm- versus country-level regressions, as well as when we address the endogeneity of political constraints. Our results suggest that reforms aimed at improving a country's political institutions can significantly impact firm growth, and that it is indeed through improved political institutions that firms are incentivized to invest in profitable projects.