Is the World Flat? Country- and Firm-Level Determinants of Law Compliance

Abstract

This research revisits the effects of a country’s institutional framework on individual firms’ behavior, focusing, in particular, on firms’ propensity to comply with legal rules. We purport to explain the variation in compliance with legal rules by employing a rich data set on thousands of firms from dozens of countries. We find that most of the variation emanates from countrywide differences in institutional quality, although various firm characteristics play a role as well. We also find indications that differences across countries diminish with the level of development.