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Law and Finance in Transition EconomiesKatharina PistorColumbia University School of Law Martin RaiserEuropean Bank for Reconstruction and Development Stanislaw GelferCredit Suisse First Boston European Bank for Reconstruction and Development Working Paper No. 48 Abstract: This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.
Number of Pages in PDF File: 37 Keywords: shareholder and creditor rights, legal effectiveness, external finance JEL Classification: K22, K40, O16, P34 working papers seriesDate posted: March 19, 2000Suggested CitationContact Information
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