Conference on Small and Medium Enterprises Financial and Legal Institutions and Firm Size Thorsten Beck, Asli Demirgüç-Kunt and Vojislav Maksimovic Discussion by Reena Aggarwal Conference on Small and Medium Enterprises October 14-15, 2004 World Bank, MC 4-800

ISSUE Relationship Between Firm Size and Legal System/Financial Institutions Positive Relationship: Larger firms are more complex, difficult to monitor/control, Need to control for expropriation by insiders 2) Negative Relationship: Larger firms can serve as internal markets and more effective in resource mobilization

RESULTS Positive relationship between firm size and legal system/financial institutions Legal system/financial institutions foster larger firms by allowing better access to finance and more effective capital allocation

COMMENTS 1) Firm-Level Analysis Why have you left out firm-level variables? Is it “largeness” alone or is it factors like concentration and float? Why not interaction of country and firm rather than just country and industry?

COMMENTS 2) Global Access to Capital Large firms – “able to choose their boundaries and determine their size without constraint” What about global access to capital? Pakistan (68 firms) versus Mexico (52 firms) but Pakistan has 5 ADRs and Mexico has more than 40.

COMMENTS 2) Global Access to Capital Other forms of monitoring Siegel, 2004

CONCLUSION INTERESTING ISSUE NICELY EXECUTED PAPER CLEAR RESULTS ROBUSTNESS CHECKS