An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development

S. Deakin, Prabirjit Sarkar () and Ajit Singh

Working Papers from Centre for Business Research, University of Cambridge

Abstract: Legal origins theory suggests that law reform, strengthening shareholder and creditor rights, should enhance financial development. We use recently created datasets measuring legal change over time in a sample of 25 developing, developed and transition countries to test this claim. We find that increases in shareholder protection contribute to stock market growth in the common law world and in developing countries, but not in the civil law world. We also find evidence of reverse causation, with financial development triggering legal changes in the developing world. We consider a number of reasons for the selective impact of law reform, focusing on the endogeneity of the legal system to its economic context, and on resulting complementarities between legal and financial institutions.

Keywords: legal origins; company law; shareholder rights; creditor rights; financial development (search for similar items in EconPapers)
JEL-codes: G33 G34 K22 O16 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-tra
Note: PRO-2
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: An end to consensus? the selective impact of corporate law reform on financial development (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cbr:cbrwps:wp423

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