GOVERNANCE AND ACCESS TO FINANCE

This paper reviews the literature on institutional quality and corporate governance and it assesses the impact of the two levels of governance on firms’ access to finance. The literature sustains that both institutional quality and corporate governance are important drivers of bank lending activity and equity financing. Among the institutional quality indicators that proved to be most effective are creditor rights, transparency and contract enforcement. The corporate governance attributes that manifest important effects on firms’ financing are the board size, ownership and monitoring of managerial decisions that reduces agency costs. The legal institutional framework and firms’ corporate governance influences the level of a country’s financial development a complementary manner.