This paper presents an integrated overview of the literature linking institutions, financial development and economic growth. From the large body of research on institutional development, the paper first selects those contributions that make it possible to study the role of institutional...

The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank's decision to liquidate bad firms has two opposing effects. First, the bank gets a payoff if a firm is liquidated. Second, it loses the rent...