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Title: Legal form and risk exposure in Spanish firms
Authors: Campos Méndez, Francisco Javier 
Carrasco, Raquel
Requejo, Alejandro
UNESCO Clasification: 531211 Comercio
Keywords: Productos de mercado
Issue Date: 2003
Publisher: 1435-5469
Journal: Spanish Economic Review 
Abstract: It is well-known that the legal form adopted by a firm determines the type of legal responsibility borne by its owners in case of bankruptcy. In this paper we argue that a firm under a limited liability status should be characterized by a higher than average bankruptcy probability, which ultimately captures their risk exposure when output is affected by exogenous shocks. To test this prediction we extend Lee's (1976) switching regressions model to a panel dataset of 1313 Spanish firms from 1990-1994, separating them into corporate and entrepreneurial forms (with/without limited liability, respectively). We consider both random effects and fixed effects panel data models, taking into account the potential endogeneity between risk exposure and the legal form choice. Our results confirm the hypothesis that firms under limited liability have significant higher risk exposure than firms under unlimited liability.
ISSN: 1435-5469
Source: Spanish Economic Review[ISSN 1435-5469],v. 5, p. 101-121
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