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Law and Finance in Transition Economies

Katharina Pistor
Columbia University School of Law

Martin Raiser
European Bank for Reconstruction and Development

Stanislaw Gelfer
Credit 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.

Keywords: shareholder and creditor rights, legal effectiveness, external finance

JEL Classifications: K22, K40, O16, P34

Working Paper Series

Date posted: March 19, 2000 ; Last revised: February 25, 2005

Suggested Citation

Pistor, Katharina, Raiser, Martin and Gelfer, Stanislaw, Law and Finance in Transition Economies. Economics of Transition, Vol. 8, pp. 325-368, 2000. Available at SSRN: http://ssrn.com/abstract=214648 or doi:10.2139/ssrn.214648

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Contact Information

Katharina Pistor (Contact Author) Columbia University School of Law ( email ) 435 West 116th Street New York, NY 10027 United States 212-854-0068 (Phone) 212-854-7946 (Fax)
Stanislaw Gelfer Credit Suisse First Boston 11 Madison Avenue New York, NY 10010 United States
Martin Raiser European Bank for Reconstruction and Development ( email ) One Exchange Square London EC2A 2JN United Kingdom +44 20 7338 7231 (Phone) +44 20 7338 6110 (Fax)