Resumen
Based on an analysis across Brazilian states, this article investigates whether the level of institutional development affects the pattern of external financing of firms. The analysis is based on a unique dataset stratified across firms from 10 to 10,500 employees (of which 71.9 percent are micro and small firms), 13 Brazilian states and 9 industries. Our main results indicate that lack institutional development ? measured through corruption and efficiency of the judicial system and financial development ? makes the use of bank credit and formal sources less frequent. Moreover, this effect seems to be stronger for small firms.