An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development
University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law
United Nations; University of Cambridge
September 1, 2011
University of Cambridge Faculty of Law Research Paper No. 40/2011
ECGI - Law Working Paper No. 182/2011
Legal origins theory suggests that law reform should have a causal impact on 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.
Number of Pages in PDF File: 33
Keywords: legal origins, company law, shareholder rights, creditor rights, financial development
JEL Classification: G33, G34, K22, O16
Date posted: September 28, 2011 ; Last revised: November 10, 2011
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