Legal Systems, Firms' Behaviour and Varieties of Capitalism

Abstract:     
Economic phenomena use to run faster than law. When the market is no longer able to ensure the efficiency of transactions and fair allocation of resources, then legislatures are called to intervene. Policy makers are normally expected to react according to the path tracked by the specific legal tradition they belong to. In particular, cross shareholding practises occurring amongst public companies do not earn the attention of the State authority until they have led to financial stability and long-term relationships. When managerial entrenchment and weak firms’ competitiveness become actual risks, a law reform is necessary. To begin with, this paper discusses the fundamental aspects that distinguish civil law and common law traditions. In doing that, it takes into account the German, the American, and the Japanese legal orders. This analysis illustrates diverse approaches in which these jurisdictions face questions related to justice and legal certainty and how such approaches are fundamental in characterising the coordinated or the liberal nature of national market economies - that is, the varieties of capitalism. Next, the research attempts to demonstrate that legal institutions have determined on their own the exchange of stock amongst corporations. Such firms’ behaviour has been very popular in Germany and Japan, but not in the United States. Finally, attention is focused on the extent to which the decisions taken by legislatures [to prevent the dangers of an excessive organizational protectionism] represent a path-dependency choice or a convergence toward the American liberal approach.

Number of Pages in PDF File: 23

Keywords: cross-shareholding, contract law, liberal coordinated economies

JEL Classification: K12

working papers series